Dubai

The Dubai Financial Market General Index (DFMGI) gained 31.06 or 0.90 per cent to close at 3,494.63, the fifth consecutive week of positive performance. Market breadth leant on the bullish side with 28 advancing issues against 11 declining. Supporting the bullish move was an increase in volume, rising to an 11-week high.

Two weeks ago the index broke out of a small descending parallel trend channel and it did so with conviction. The move follows the low of 3,325.98 reached three weeks ago, and it provided further confirmation that strength was returning to the market. As of last week’s 3,512.26 high the DFMGI had advanced 5.60 per cent off that low. The 50 per cent retracement level (3,505.08) of the prior downtrend off the October peak was also reached.

Last week’s resistance occurred in a logical price zone as it is around both the 3,504.99 swing high from November 14, and the 50 per cent retracement. If a pullback occurs in the short-term it would not be unexpected. The first support zone is around 3,454, followed by the downtrend line from the November peak. That price will vary depending on the date that it’s hit, if it is hit. Nevertheless, the DFMGI’s behaviour over the past few weeks points to further strength. A pullback at this point would be healthy for the developing rally.

Moves higher will potentially face resistance in several price zones. Each is part of a multi-month rectangle type consolidation pattern. The first price level to watch is the swing low from the beginning of October last year around 3,538. That price area is followed by the August swing low at 3,560, followed by a more difficult price zone, around 3,603.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) was up 42.68 or 0.94 per cent to end at 4,591.11. There were 21 advancing issues and nine declining, while volume was approximately equal to the 20-day average.

There are several developments recently that improve the prospect that the ADI may attempt to challenge if not exceed the 2017 highs in the coming months. The advance off the 4,244.50 low hit six weeks ago has been decisive, with the ADI rising as much as 8.21 per cent in five weeks. Weekly performance has been positive for each of those weeks, with each of the past three week’s ending strong, near the high of the week’s range. In addition, two weeks ago the downtrend line coming off the January 2017 peak was exceeded, with a weekly close above the line for each of the past two weeks.

The significance of the breakout above the line was enhanced by the fact that it also a breakout of a large descending parallel trend channel. That is a large pattern that formed over the preceding 12 months. It is interesting to note that the channel occurred along support of the long-term downtrend line that is drawn from the September 2014 peak. The ADI moved above the line in December 2016. It was resistance and has now been tested as support and held for a year. This is a classic bullish market behaviour.

Once a breakout of a chart pattern occurs there is a tendency for a market to keep going for some period of time, which is why a breakout has significance. We’ll have to see if that happens here, but regardless investors should be prepared.

There is now a zone of potential resistance to get over if the ADI has a chance to keep going higher in the foreseeable future. It starts around the 4,609 swing high from last August and goes up to the 2017 peak around 4,715.

Near-term support is at last week’s low of 4,530.34 and down to around support of the downtrend line at roughly 4,517.

Stocks to watch

Deyaar Development was the third best performing stock last week in the Dubai market, up 6.10 per cent to close at 0.557. The move occurred on 11-week high weekly volume. On Wednesday Deyaar triggered a bullish trend continuation signal as is rallied above the prior swing high (resistance) of 0.565. Nevertheless, it was unable to close above that price level on a daily basis. This makes it prone to a short-term pullback as it prepares for another run above that swing high.

A daily close above 0.565 will confirm a bullish trend continuation. At that point Deyaar will next be heading towards the 0.589 to 0.598 resistance zone. That price zone consists of both prior support and resistance, as well as the 61.8 per cent Fibonacci retracement level at 0.595. Fibonacci ratio analysis identifies potential resistance in this case. It is derived by measuring the prior downtrend starting from the January 2017 highs.

During a pullback there are several areas to watch for signs of support. The first is around the 38.2 per cent Fibonacci retracement of the current uptrend at 0.538. But, the more significant potential support zone is around the 50 per cent retracement at 0.525 and down to last week’s low of 0.52. Ideally for the bulls, last week’s low is not exceeded to the downside as it would put the above bullish scenario at risk.

Bruce Powers, CMT, is a technical analyst and global market strategist.