Dubai: Last week the Dubai Financial Market General Index (DFMGI) ended higher by only 20.67 or 0.42 per cent, closing at 4,928.22. Volume rose to a five-week high but remained in the lower half of weekly volume levels of the past year. There were almost twice as many declining issues as advancing, coming in at 22 to 12, respectively

Although there was technically a bullish breakout of the ascending triangle pattern discussed last week, there was mediocre follow-through. The DFMGI ended the week on a weak note, closing in the bottom quarter of the weekly range, and below the six-week high of 4,935.24. Further, the market rallied on the Sunday breakout day, but spent the following three days going almost nowhere, before dropping on Thursday. These factors do not engender confidence for upside follow-through in the immediate future. A strong breakout will typically see additional strength on follow-on days, right away.

Regardless, the importance of the above analysis depends on your time horizon. A breakout did occur and now the index is pulling back into potential support. That’s normal behaviour so far. Given the weak breakout factors, that pullback has the potential to fall deeper into the ascending triangle consolidation formation. As always, the potential for a complete failure of the bullish triangle breakout is also possible. A daily close below 4,857 increases that possibility.

Lower down is potential support of the 55-day exponential moving average (ema), currently at 4,757.81. A drop down to around that price level would keep the eight-week uptrend in shape, but just barely. Weekly support is just below there at 4,774.90.

For the past five weeks the DFMGI has maintained a series of higher weekly lows. Therefore, a decline below the weekly support level provides an indication that further weakness could be forthcoming as the five-week pattern of higher weekly lows changes.

If the pullback is shallow and the index turns back up with some conviction after finding support, watch for resistance around 5,191.50, followed by 5,292.83. That higher price level is determined by measuring the ascending triangle formation and projecting into the future.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) advanced only 19.43 or 0.38 per cent last week to close at 5,070.70. Volume improved to a five-week high, but was still lower than all other weekly volume for most of the past year. The direction of individual issues was about even, with 22 advancing and 19 declining.

Most of the gains from earlier in the week were wiped out on Thursday as the ADI turned down and fell 1.13 per cent, ending the week below the prior week’s high and in the bottom quarter of the week’s range. As with the DFMGI, this is short-term bearish behaviour.

During the current eight-week uptrend the ADI retraced more than 85 per cent of the downtrend off the late-May peak. As of last week’s high of 5,149.51 index was up 15.7 per cent from the 4,452.83 bottom of that decline, a relatively strong recovery. Given last week’s performance the odds for a pullback lower look to be increasing.

Support of the 55-day ema is now at 4,968. The 55-day ema was tested as support during the most recent pullback and the index bounced right off it. There’s a good chance it will do so again. And if not, then the 100-day ema is just below it at 4,907.

The key support level to watch is 4,896.48, as that was the bottom of the most recent swing low from August 7. If there is a daily close below that price level then the basic chart structure of the uptrend is comprised and further selling could follow. A decline below that level would also put the ADI at a five-week low.

Stocks to watch

Emirates Integrated Telecommunications (du) has been going essentially sideways, within a relatively narrow range, for approximately six weeks or so, creating a rectangle consolidation pattern on its chart. The bias remains higher for the stock as it has only had one run off the late-June lows before consolidating.

Declines during that time have met support at 5.70 or higher over a number of days. Therefore, support, or the bottom of the pattern is clearly identified.

For the past several weeks a series of higher lows have formed within the rectangle, also pointing to an upward bias. Whether the upward bias remains if there is a pullback in the wider market remains to be seen. However, if a market pullback does come, and du stays above support of 5.70 during that time, the chance for a subsequent rally and breakout of the rectangle improves.

Resistance of the range is not as clear as support. There were a coupe attempts to breakout higher in the past and they were quickly beaten back down. But, the first sign of moving up out of the rectangle would come above 5.90, and then confirmed on a daily close above 5.97.

Last week du gained 0.51 per cent to close at 5.87.

 

Bruce Powers, CMT, is president of WideVision and chief technical analyst at MarketsToday.net. He is based in Dubai.