Traders at Dubai Financial Market (DFM) Image Credit: Atiq Ur Rehman/Gulf News

Dubai: Last week, the Dubai Financial Market General Index (DFMGI) dropped by 13.56 or 0.48 per cent to end at 2,826.60. There were 15 advancing issues and 19 declining, while volume rose to an eight-week high.

A consolidation phase continued as there was an inside week, where the high-to-low range of 2,852.27 to 2,810.15, was contained within the range of the prior week. This pattern indicates consolidation on a weekly basis, while in the daily chart the index has been moving within a range between 2,853.76 to 2,795.96.

At the same time, last week’s low was higher than the low of the previous three weeks, a minor sign of strength. If the DFMGI can rally above the two-week high of 2,853.76, just a tad above last week’s high, then the next short-term bullish signal will be generated as a three-week high will be exceeded.

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Nevertheless, the overall pattern in the DFMGI continues to be bearish as the downtrend is still well in place. Although the decline stopped four weeks ago at 2,795.96, downward pressure remains given the lacklustre bounce so far. The odds still favour a continuation to the downside even if a higher bounce ensues in the near-term. To counter that outlook, a daily close above the most recent swing high of 2,986.36 would be needed. From there the downtrend structure of lower lows and lower highs would be changed.

For now, a higher counter-trend move is likely in the short-term as long as the recent trend low is not broken on the downside. Certainly, reaching the 50 per cent retracement of 2,891.16 of the most recent down swing is a strong possibility. Thereafter, watch the 61.8 per cent Fibonacci retracement around 2,913.63 for some resistance. Weekly resistance is close by to that price level at the four-week high of 2,922.40.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell by 68.56 or 1.37 per cent to close at 4,918.32. Market breadth leaned on the bearish side with 15 advancing issues and 18 declining, while volume increased to a 14-week high.

Technically, last week’s behaviour is increasing the possibility of at least a short-term pullback or consolidation phase. Since hitting a swing low of 4,414.00 17 weeks ago, the ADI has advanced as much as 14.2 per cent as of the 5,039.83 swing high hit two weeks ago. There’s only been one notable pullback during that run. A 5.3 per cent decline occurred in early June.

Last week’s high of 5,004.84 was below the two-week high, a minor sign of weakness, but at the same time the week’s low of 4,869.41 was lower than the 4,885.23 low from two weeks ago. This is possibly the beginning of a downtrend, i.e. lower weekly low and lower weekly high. In addition, the week closed weak, in the bottom half of the week’s range.

Most notable pullbacks in the ADI since the January 2016 bottom have dropped more than the 5.29 per cent seen in June. Out of 11 such retracements eight have been larger. What this says, when considering the strength of the recent 17-week advance, is that there is a good chance of at least a 5.29 per cent retracement from the recent swing high if not more. That would drop the index to at least 4,773.22.

First though, we have to see a new sign of weakening with a drop below last week’s low. The ADI will then be targeting the 50 per cent retracement zone of the most recent rally around 4,766.93. Note that this price level is very close to the 4,773.22 price noted above. Together, the levels should be looked at a possible support zone with a high probability of getting hit at a minimum. The more significant price area is around the prior highs of 4,745 to 4,652 from earlier this year.

Stocks to Watch

Takaful House was one of the top performers in the Dubai market last week, up 0.04 or 6.6 per cent to close at 09.682. Weekly volume spiked to a seven-week high and the third highest volume week this year. Putting that together with the pattern developing in both the daily and weekly charts for Takaful House indicates this stock deserves some attention.

A bottom and low for 2018 was reached at 0.586 in June. This looks to have ended a 60.5 per cent 18-month decline off the 2017 peak of 1.482. That low was quickly followed by a greater than 58 per cent rally to a 0.929 swing high. That’s a strong sign that the bulls returned and it marks the first leg up of a possible uptrend and bullish reversal of the 18-month downtrend.

Subsequently, a 32.4 per cent decline occurred to the 0.628 swing low hit four weeks ago, creating a higher swing low — relative to the 0.586 swing low, which is the early formation of an uptrend. On a weekly basis, Takaful House reached a four-week high last week and had a higher low than the prior four week lows.

This sets up nicely for a continuation higher and a second leg up. We may see an aggressive move higher given the enthusiasm seen in the first leg up off the bottom.

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