Dubai:It took only three days last week for the Dubai Financial Market General Index (DFMGI) to gain 79.54 or 3.07 per cent, the strongest move of the past several weeks. The gain comes from relatively fewer stocks than might be seen normally on such a move. There were 13 gainers and 14 decliners last week. The index closed at 2,674.15, while volume was slightly below the prior week. As of the close the DFMGI is up 66 per cent for 2013 and over 106 per cent from the January 2012 low.

The DFMGI is now fast approaching the next potential resistance zone from approximately 2,712 to 2,752. However, a more significant zone exists higher and includes a symmetry target where the current six-week rally matches the percentage move of the most recent prior rally. Given this higher potential resistance zone, the chance that the lower zone will provide only temporary resistance exists. The higher resistance zone is from 2,870 to 3,049 and derived from both prior resistance and support on a monthly chart, hit multiple times. The symmetry target, also referred to as a measured move in chart analysis, is 2,998.9. In addition, the long-term downtrend line representing resistance of the trend is also in that resistance zone. The long-term downtrend line comes off the peak from 2005.

Last week’s low of 2,591.25 provides near-term support which if broken would be a clear sign for further weakening in the short-term as profit taking intensifies. The 2,500 area would then be the next support zone, followed by the 2,400 area.

Last week the Abu Dhabi Securities Exchange General Index (ADI) made a minor move higher of 6.90 or 0.18 per cent to close at 3,929.41. This puts the index at another new high for the uptrend with a gain of 49.7 per cent year-to-date. From the January 2012 bottom the ADI is up 71 per cent. Even with the shortened trading week volume exceeded the prior week, but remained near the lower end of the range for 2013. Last week’s strength was not seen across the board as 14 issues advanced while 15 declined. Overall, a positive week with the ADI maintaining its uptrend.

There are two price areas that make up the next potential resistance zone where more aggressive profit taking than what has been seen recently may occur. It is now very close above current levels and could be reached any day. The first price level, and bottom of the zone, is around 3,956. That was where monthly resistance was seen back in October 2008. The top of the zone is at 4,001.56. If this resistance zone is reached then a 61.8 per cent Fibonacci retracement of the descending trend begun from the peak back in 2008 would have completed. A significant milestone but also a signal that the index may be getting closer to seeing a correction of some note. There is no sign of weakness at this point but investors should remain on guard as the ADI approaches this zone. Alternatively, a decisive daily close above the top of the zone (above 4,001.56) would provide a new bullish signal.

Near-term support on a weekly basis is around 3,825. That price area represents support for the past several weeks. A break below there would only signal a minor correction with the index then targeting 3,704 to 3,678. If a daily close below 3,678 occurs then the odds increase for a drop down to the next support zone from approximately 3,704 to 3,678.

Stocks to Watch

Dubai Islamic Bank (DIB), the second strongest performer in Dubai, gained 5.6 per cent last week to close at 3.77, the high for the week. That is a new high for the four-month uptrend and signals a continuation of the trend. It is also the highest weekly close since mid-October 2008. Weekly support is at 3.55, last week’s low. Trade below that level in the immediate term would likely lead to a failure of last week’s bullish breakout. On the upside the stock is next targeting 3.81 to 3.87. However, given that those price levels are so close by, along with the move to new highs, there looks to be a good chance that potential resistance zone will be exceeded. The next major potential resistance area is then around 4.58, the 38.2 per cent retracement of the medium-term downtrend.

The Dubai Financial Market’s chart is similar to DIB’s but trailing only slightly behind on a technical basis. The stock was up six per cent last week and closed at 2.12. That followed a move to 2.14, prior resistance and the high of the current uptrend. A decisive breakout above that high will signal a trend continuation with the next target up around 2.75, the peak from the October 2009 rally. The trend pattern and price behavior would suggest there’s a good chance the stock could break out in the coming days.

Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai. He can be reached at bruce@etf-portfolios.com