Price action over the past several weeks in the UAE indices has been constructive as they continue to flirt with the potential of breaking out above 2016 highs. Meanwhile, oil remains close to nineteen months highs thereby improving investor sentiment towards UAE markets. Several times over the past couple of years oil has led the trend for UAE markets, and it may be doing so again now. If this is the case then both Dubai and Abu Dhabi market indices may soon breakout. If not, they will likely stay stuck within a relatively large price range for a while longer.
Last week the Dubai Financial Market General Index (DFMGI) was up 96.98 or 2.75 per cent to close at 3,627.86. That’s the DFMGI’s best performance in five weeks and it occurred during a shortened 4-day trading week due to the New Year holiday. Market breadth was clearly bullish with 28 advancing issues and 10 declining, while volume rose to a three-week high.
Although the DFMGI did not exceed the 2016 high of 3,658.61 (12-month trend high) it did reach a new weekly closing high, which by itself is bullish. That’s the highest weekly closing price since October 2015. Also supporting a bullish argument is the minor degree of retracement just seen.
Following a spike to a new 2016 high of 3,658.61 on December 12 the DFMGI began to retrace the prior accelerated uptrend. That pullback brought the index to a low of 3,490.66 several weeks ago where it found support and ended the decline. As a short-term bottom was developing just above that low the index bounced off the area of the 21-day exponential moving average (ema) support thereby marking it as a valid short-term trend indicator for future consideration.
What’s interesting about the pullback is that it reversed before reaching the 38.2 per cent Fibonacci retracement level, which is at 3,479.85. In general, when using Fibonacci ratio analysis in order to help find potential support levels during a retracement the assumption is that a minimum 38.2 per cent retracement will occur. That is perfectly normal and healthy and a continuation of the uptrend from that price area indicates a relatively strong trend. In this case the DFMGI could have easily gone lower but buying pressure was such that it could not. So far this is bullish behaviour particularly given last week’s strong performance, high weekly close, and volume improvement on a short trading week.
Last week’s high was 3,546.52, only 0.33 per cent away from the 2016 high. If a daily close occurs above the 2016 high a bullish trend continuation signal will be given. The first minor target for the index would then be 3,740, followed by a resistance zone starting from around 3,913.
The Abu Dhabi Securities Exchange General Index (ADI) increased by 55.59 or 1.22 per cent to close at 4,601.96. There were 18 advancing issues and 10 declining, while volume jumped to a four-week high.
A bullish short-term trend continuation signal was given as the ADI exceeded the recent high of 4,589.91 hit four weeks ago and closed above it on a weekly basis. The high for the week was 4,616.33, almost reaching the prior peak of 4,621.50 from July. In addition, the index is now decisively above its long-term downtrend line.
Last year’s high of 4,637.24 remains the target to beat. The chance that the ADI will do so has improved given last week’s performance on higher volume. A daily close above the 2016 high confirms an upside breakout with the index then heading towards the July 2015 peak around 4,902.
Support is at last week’s low of 4,498.59, followed by the most recent retracement low at 4,436.65. That low completed a 38.2 per cent Fibonacci retracement of the prior uptrend before the ADI turned back up.
Stocks to watch
Dubai Financial Market has closed above its intermediate-term trend line on a weekly basis and is also back above its 200-day ema. Last week the stock was up 5.6 per cent to end at 1.32, a fifteen-week closing high, while volume jumped to a three-week high. This is bullish behaviour that requires further confirmation of strength. That confirmation is indicated on a rally above and daily close above the most recent swing high of 1.36. In the near-term the next sign of strength is on a move above last week’s high of 1.33. Following a breakout above 1.36 Dubai Financial Market first heads towards 1.44 and then 1.59.
DXB Entertainments was up 2.31 per cent last week to close at 1.33. This stock is not one of the stronger performers in the market but it’s reached a support shelf that could lead to a decent bounce. For the past two weeks the stock has tested support at 1.28. This follows a six week steady decline. That low complete a 61.8 per cent Fibonacci retracement of the prior uptrend and is in the area of previous resistance from 2015. In addition a double bottom trend reversal pattern has formed in the daily chart. An upside breakout of that pattern occurred last week on a move above 1.34. Watch for a rally above last week’s high of 1.37 to confirm strength.
Bruce Powers, CMT, is chief technical analyst at www.MarketsToday.net. He is based in Dubai.