A positive start to the new year for UAE markets

The Dubai Financial Market General Index (DFMGI) saw its strongest one-week performance in nine weeks last week, rising 56.53 or 2.29 per cent to close at 2,526.02. Strength was widespread as there were 30 advancing issues and only four declining, while weekly volume dipped to a seven-week low given the shortened trading week due to the year-end holiday.

It was a tough 2018 for the Dubai market, as it fell 24.9 per cent as of last year’s close at 2,529.75. The DFMGI hit a peak at 3,684.19 in October 2017 and subsequently went into a steady decline for the next 13 months, with a series of lower swing highs and lower swing lows. This continued into the end of the year and the index remains in a clear downtrend.

The DFMGI is still at risk in the bigger picture as the prior long-term support at 2,590.72 was broken to the downside in December. That drop triggered a bearish continuation of both the intermediate (starting from the February 2017 peak of 3,738.69) and long-term (begun from the May 2014 peak of 5,406.62) downtrends.

Nonetheless, in the near-term there are once again a couple signs that at least a bounce could be coming. First, last week’s high was above the prior week’s high for the first time in eight weeks. In addition, and more significant, the week’s close was above the high of the prior week. Further, there is a clear bullish divergence in the 14-day Relative Strength Index (RSI) momentum oscillator. This shows that as price has been declining recently, the pace or momentum of the drop has been falling. The RSI has an upward slope even though price has been going down overall. Once momentum starts to slow it can lead to a reversal.

Next, there needs to be additional signs of strength to confirm the potential short-term bullish indications noted above. A daily close above last week’s high of 2,539.96 provides the next sign of strength. The index then heads towards the most recent daily swing high and four-week high of 2,603.38. If it can then close above that price level on a daily basis it has a shot of continuing up into a 2,706 to 2,654.49 consolidation zone where resistance might be seen.

Abu Dhabi

For the week, the Abu Dhabi Securities Exchange General Index (ADI) jumped 66.96 or 1.39 per cent to end at 4,898.20. Market breadth was clearly positive, with 20 advancing issues against nine declining, while volume was the lowest of the past couple of months. The index was up 11.75 per cent for 2018.

For the past month or so the Abu Dhabi Securities Exchange General Index (ADI) has been stuck within a range. Last week it started to show signs of finally moving out of that range as last week’s high of 4,915.19 exceeded the highs of the previous four weeks, and last week’s close was the highest weekly closing price in six weeks. However, the index is not out of the woods by a long shot, as it remains below the 50-day simple moving average (sma), an indicator for the intermediate trend. It is now at 4,919.88. Last week the line was tested as resistance and it held, so far stopping the bounce. Further, the ADI is now facing a range of consolidation resistance all the way up to the 2018 high of 5,079.97.

Given the above, it looks like there’s a fair chance that the ADI will continue to move within a range for the foreseeable future and further evolve the consolidation pattern that has been forming for the past five months or so.

A continuation of the uptrend will not be possible until there is a daily close above the 2018 high, and there is considerable resistance to confront before that happens. Alternatively, further downside is likely if a drop below the 4,762.60 low of the past 23 weeks occurs.

Stocks to watch

There are not yet many clear technical set-ups in the UAE market currently. Most of patterns that are starting to develop need a little more time to evolve.

One to keep an eye on is Islamic Arab Insurance Company. It was the second best performer in Dubai last week, rising 0.06 or 14.9 per cent to close at 0.487. Volume jumped to an 11-week high on the advance, even with the shorter trading week.

Two weeks ago the stock tested support 0.385 and it held leading to higher prices into last week. That’s the third time since last May that price came down to the 0.39 to 0.38 price range and then eventually rallied off of it.

Last week Islamic Arab Insurance rose above the prior week’s high of 0.48 and closed above it on a weekly basis. Some backing and filling would be useful at this point and that could present an opportunity to start to accumulate the stock in anticipation of eventual upside follow-through.

Islamic Arab rallied strong off the August low of 0.387 before finding resistance at 0.755, ending a 95 per cent advance. Subsequently, it dropped 49 per cent to the 0.385 low hit two weeks ago. Therefore, the potential exists for bullish sentiment exhibited in the August rally to return.

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