Bullish sentiment grows in UAE markets

Dubai: The Dubai Financial Market General Index (DFMGI) gained 139.4 or 3.86 per cent to close at 3,754.10, a six-week closing high. Weekly volume improved to twice the prior week, and hit a 15-week high, while daily volume on Tuesday reached its highest level since July 2, 2014. Market breadth was bullish, with 28 advancing issues and eight declining.

Tuesday was the day the DFMGI exceeded potential resistance of the downtrend line (coming off the September 2014 peak) and the 55-day exponential moving average (ema), a medium-term trend indicator that many times acts as resistance or support. Subsequently, the index found resistance for the week at the day’s high of 3,802.52, completing eight consecutive days of higher prices. After eight days up, a little rest is normal and actually healthy for the trend. Regardless, the week ended above the line.

The pullback on Thursday was minor and the index quickly found support around both the downtrend line and the 55-day ema. Since those two trend indicators previously marked resistance, having them now show signs as support is bullish behaviour, as is each of the factors discussed above. To continue a bullish outlook the DFMGI should stay above both the 55-day ema (now at 3,711.66) and/or above the downtrend line during any weakness.

Investors will now be watching the index to provide greater confidence that bullish sentiment in the Dubai market is growing. The first confirmation of a bullish trend continuation is on a daily close above last week’s high. At that point the odds improve that the index will reach its next more significant resistance zone, which is from approximately 3,959 to 4,020.

As of two weeks ago that resistance zone takes on greater significance as the DFMGI has formed a bullish ascending triangle pattern on its chart. That’s where the top of the pattern or resistance is represented by a horizontal line, and the bottom of the pattern an ascending line, reflecting underlying buying pressure. This means that if the DFMGI continues to ascend in the near-term there is a good chance selling pressure will rise near the top of the triangle.

At the same time, a decisive breakout above 4,020, is both a bullish breakout of the triangle, and a continuation of the uptrend that began from the December 2014 low, thereby increasing the odds the breakout will be sustainable. If this occurs then the DFMGI next heads into a resistance zone starting from around 4,231 and up to 4,698.

Last week’s low of 3,613.40 is the important support area to watch at this point, as a drop below it will violate what is now a two-week uptrend.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) advanced 24.14 or 0.53 per cent to close at 4,562.86. There were 17 advancing issues and 16 declining, while volume rose to a 14-week high.

Contrary to what we see in the DFMGI in regards to its downtrend line, the ADI found resistance at its line and did not manage to rally above it before the end of the week. Given the location of the 55-day ema for the ADI, its significance is less than what we see with the DFMGI. Instead, the 200-day ema takes on greater significance.

For the week the high was 4,590.18. A decisive rally above that price level is needed to signal a bullish breakout of the trend line. However, potential resistance of the 200-day ema, which is now at 4,637.66, is close by. Therefore, watch for a daily close above the 200ema for greater confidence that upward momentum is improving. Further, a subsequent rally above the prior peak of 4,703.58 is needed to trigger a bullish continuation of the four-month uptrend. At that point the ADI would be heading up into a consolidation resistance zone from around 4,790 to 5,004.

Last week’s low of 4,516.78 is support, with a drop below there likely leading to a deeper pullback.

Stocks to watch

Dubai Investments was up 12.96 per cent last week to close at 2.79, while volume surged to a nine-week high. During the advance it broke above both the 200-day ema and 55-week ema, ending the week above each, which is bullish behaviour. In addition, the stock broke out of a bullish ascending triangle as it rallied above 2.63.

However, at this point Dubai Investments is getting extended and could see a pullback soon in the short-term. It is the most overbought in a year based on the Relative Strength Indicator (RSI), a measure of momentum, and has been rising for almost 10 consecutive days. Regardless, risk is difficult to manage when entering a stock that is extended.

Given the triangle breakout and subsequent strength, targets are higher. A retracement into support at this point will provide another opportunity to take advantage of this opportunity. Watch for support on a pullback around the breakout area, and then around the 55-day ema, which is now at 2.45.

The target from the triangle pattern is around 3.58, while lower price levels to watch are 3.05, 3.41, and then 3.58, each derived from the confluence of Fibonacci retracement levels.

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