Best performance in 4-weeks for Dubai, while Abu Dhabi only 1.3% from high

Dubai: The Dubai Financial Market General Index (DFMGI) saw its strongest rally in four weeks, closing higher by 192.53 or 3.91 per cent to end at 5,120.75. Volume was roughly the same as the previous week, while market breadth was about equal, with 17 advancing issues and 15 declining. Higher volume on this move higher would have provided a bit more confidence that strength is widespread, enough to keep the index going in the near-term.

We’re now seeing a bullish continuation of the upside breakout from the ascending triangle trend continuation pattern discussed in this column over the previous couple of weeks. This was a quick recovery from the one-day pullback that occurred two weeks ago, and points to underlying strength.

The minimum target from the pattern is approximately 5,292.83. Last week a lower resistance zone of around 5,191.50 was reached and the DFMGI spent much of the week stalled at that resistance area. The specific price is the peak from the short-term rally that ended in early-June.

If the DFMGI is able to get up to the triangle target area, it would then be within a stone’s throw away (approx. 2.2 per cent) from the 5,406.62 peak from May — a six-year high. A daily close above that peak triggers a bullish continuation of the long-term uptrend.

Next, watch for a move higher, above last week’s high of 5,193.03, as a sign of strength.

On the downside, last week’s low of 4,928.22 is important support, as a drop below it increases the odds for further weakness. At that point we would no longer have a sequence of higher weekly lows, part of the definition of an uptrend. Last week was the sixth week in a row that the pattern occurred.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) advanced 70.48 or 1.39 per cent last week to close at 5,141.18. Volume improved slightly above the prior week and reached a six-week high. The gain in the index was not supported by the wider market as there were 27 declining issues while only 16 gained.

Last week’s high was 5,193.55, only 1.2 per cent away from the May 29 peak of 5,255.35. This indicates a relatively strong recovery from the 15.3 per decline that bottomed nine weeks ago. And, arguably, improves the odds for the ADI to eventually exceed that peak. Whether it does so in the near future remains to be seen.

Based on the Relative Strength Index technical indicator (RSI), the ADI is not yet overbought. This means that the indicator is not signalling that the odds for a pull-back are higher than they have been. The RSI is an oscillator that measures momentum of price movement.

The first sign that a continuation higher is less likely for the time being is on a drop below last week’s support of 5,068.25. There is then a consolidation support zone down to 4,896.48. Buyers could hold the market at any time down to that level. If there is a daily close below it, then the odds increase for further weakness.

What is indicated on a breakout above the 5,255.35 peak? Let’s first step back and look at the bigger picture. Back in June 2008 the ADI peaked at 5,154.51. It then consolidated just below there for a number of weeks before a precipitous fall into the January 2009 lows in response to the 2008 financial crisis. Even though this year’s high exceeded that 2008 high by a little, the ADI eventually met resistance that was strong enough to lead to the 15.3 per cent correction mentioned above.

If there is a decisive rally and subsequent daily close above the 5,255.35 peak, then its significance is increased by the fact that the ADI is now back above the 2008 peak as well. Therefore, the odds increase that it can keep going after that — in the long-term.

Stocks to watch

Ras Al Khaimah Cement (RAKCC) has been consolidating in a relatively tight range for the past seven weeks or so. This while the larger market has been rallying. Even though it reflects relative weakness, stocks that breakout of this pattern have a tendency to accelerate in the direction of the breakout. The odds favour an upside breakout given the strong performance in the ADI, and a sharp rally that preceded the consolidation structure.

An upside breakout is first indicated on trade above 1.34, and confirmed on a daily close above that price level. RAKCC would then be targeting 1.48, followed by 1.51, then 1.65.

Abu Dhabi Islamic Bank broke out above 6.50 resistance a couple of weeks ago and accelerated higher. Since then, for the past seven trading days the stock has pulled back with very low volatility (low range days). This is very bullish price behaviour.

There is not yet a good pattern to rely on, but this stock deserves to be watched as it evolves over the coming weeks. Dips down towards the breakout area are likely to be met with enthusiastic buyers looking to enter at lower prices.

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