Euphoria is likely to continue

Dubai: Last week's enthusiasm by international investors may carry over to the UAE this week. Watch the price behaviour of market indices around key resistance levels for clues to whether bullish sentiment will be short term or if it can be sustained.

The UAE equity markets had closed by the time major central banks jointly coordinated liquidity enhancements to the global financial system last week. International equity markets reacted enthusiastically before pulling back a bit on Friday. The debt problems in Europe remain however, with the risk of recession growing.

Dubai

Last week the Dubai Fin-ancial Market General Index (DFMGI) rallied 30.35 or 2.25 per cent to close at 1,378.94. Market breadth was bullish with 18 advancing issues and nine declining.

Volume rose above the previous several weeks (including one holiday week) and was near the highs of the past four months, but it remained near the low end of the historical range. Increasing volume, above recent levels and above the average, would indicate that sustainable upward buying pressure may be coming into the market.

If the trading week had not been cut short by one day then maybe we would have seen this type of volume action. Keep an eye on volume during the next rally or continuation of the current rally for bullish confirmation or lack thereof.

So far the DFMGI has held support from the low of the year at 1,338.56, with some strength returning last week.

The index did manage to briefly trade above weekly resistance at 1,379.59, from two weeks ago, but closed slightly below it. The DFMGI has been in oversold territory for a number of weeks with downward momentum lessening. But, there's not confirmation yet that momentum has turned which could lead to a further rally.

Before there are indications that the DFMGI could continue to strengthen in the short-term, it needs to close above 1,396.71. However, significant resistance could then be found around the 1,428 area.

In the medium term the DFMGI would need to close above 1,501.10 before signalling strength that could see the index move higher from there. The stronger force remains down until then for the medium-term.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) rose 26.73 or 1.11 per cent to close at 2,444.86. Volume was not particularly supportive of the bullish move as it remained below the past couple weeks and low historically. Even without the shortened trading week volume still looks like it would have been weak. Market breadth was indecisive with 17 advancing versus 18 declining issues.

Last week the ADI reached a bottom at 2,412.52 following 10 consecutive days of declines. So far last week's performance is just a bounce in a larger downtrend. A continuation of the five month downtrend was confirmed on a break through support at 2,440.96 two weeks ago. Until proven otherwise this medium-term downtrend can be expected to continue once resistance is reached and price turns back down. First, watch for resistance around 2,461.17, followed by weekly resistance at 2,473.57.

Support was found last week in the approximate area of 2,429.97, long-term support from December 2009. Given that the ADI has been in a steady decline for a little over five months, that it reached a long-term support level, and that rallies have been relatively short in duration, it is conceivable that the index might hold last week's low for a bit and move higher. An alternative to a continuation of the medium-term downtrend in the short-term would start to be indicated on a close above the 2,473.57 price level. If this happens then the ADI could start moving into a period of consolidation — relatively choppy sideways action — or could rally higher.

Further strengthening is signalled on a close above 2,494.28. If the ADI can keep going higher from there then more significant resistance will likely to be found around 2,551 - the bottom of a multi-year symmetrical triangle consolidation pattern. A breakdown out of this pattern was confirmed 10 weeks ago and is bearish for the long-term.

Stocks to watch

Arabtec Holding rallied 4.29 per cent last week to close at Dh1.46, a seven month high. It's also one of the few stocks trading above its 200 daily exponential moving average (ema), a long-term trend indicator. Together these are bullish signs. The next more significant resistance is up near the Dh1.58 price area.

Dubai Islamic Bank attempted to break up out of a head and shoulders bottom reversal pattern last week, but it failed so far closing back below resistance. If it can close above Dh2.01 on another breakout attempt, it has a chance of moving higher from there. The stock of Shuaa Capital closed at Dh0.58 as it continues to accelerate downward. It fell 9.23 per cent last week and 14.23 per cent the prior week. Technically, this stock broke down from a bearish descending triangle pattern 11 weeks ago. The next potential support area is not until approximately Dh0.47.

Abu Dhabi National Energy Company is starting to slowly strengthen. A move above Dh1.22 will give the next bullish signal.

Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-portfolios.com

Stock market investments are risky and past performance does not guarantee future results. Gulf News does not accept any liability for the results of any action taken on the basis of the above information.