Positive performance in UAE markets could push acceleration higher

Dubai: The Dubai Financial Market General Index (DFMGI) advanced by 84.6 or 2.11 per cent last week to end at 4,101.90. Volume dropped to a nine-month low (four-day trading week), while market breadth was supportive of the bullish move, with 26 advancing issues and nine declining.

In the short-term, a minor bullish signal was given as the index ended the week just above the prior week’s high of 4,098.07. That activity is contained within a descending channel or bullish flag pattern, and it puts the DFMGI clearly back above both the 55-day exponential moving average (ema) and 200-day ema. These two ema’s are confirming price compression as they’ve converged over the past couple of weeks. What frequently follows compression is an acceleration in momentum.

Next watch for a breakout of the descending channel for signs that the DFMGI is getting ready to go higher. That first occurs on a decisive move above approximately 4,120. Minor resistance is then around the swing high of 4,196.41 from June 23. However, a decisive rally above the 2015 high of 4,253.28 is needed for a continuation signal on the intermediate-term trend, which begins from the December 2014 low.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) advanced by 84.6 or 2.11 per cent to end at 4,101.90, a new eight-month weekly closing high. Volume dropped from the prior week, while there were 27 advancing issues and only five declining.

The ADI ended the week above the highs of the prior two weeks, triggering a bullish signal for the very short-term trend, and a possibly an early signal for the larger trend. So far, the chart structure is indicating that a continuation up to or above the June peak at 4,896.89 (high for 2015) is likely. Ideally, upward momentum would continue in the near-term giving the market enough strength to bust through that peak before a pullback occurs.

If such a pullback does occur first, however, watch for short-term support around 4,768.53, followed by a price zone from 4,692.29 to 4,664.41. A drop below the second potential support level starts to signal further weakening, which is confirmed on a drop below the lower price level. At that point the potential bullish move discussed above becomes much less likely for the foreseeable future.

At the same time dips below 4,664.41 will be hitting a large consolidation zone created during the first half of the year. This presents a number of areas where support could hold any decline. Further consolidation could then follow.

If the ADI manages to exceed the June peak, then the next potential resistance zone is from around 4,969 to 5,004.

Stocks to watch

There are several potentially bullish symmetrical triangle patterns developing on at least a few stocks. Although these patterns look to have a little ways to go before they break out, they deserve to be watched. As with all breakouts, a trigger or signal is needed to identify the breakout. A symmetrical triangle is a consolidation pattern that occurs following a clear rally, in this case, where a descending line can be drawn across the price action along the top of the pattern and an ascending line across the bottom.

The stock that is set-up in the strongest position is Dubai Investment (DIC), as support of the pattern is being seen around the 200-day ema, whereas the other two triangles are forming below their respective 200-day ema’s. DIC is up 22.69 per cent year-to-date, and it advanced 2.82 per cent last week to close at 2.92.

The first confirmation of an upside breakout begins above 3.08, and is further confirmed on a move above 3.11, and then finally above 3.20. Aggressive traders can use 3.03 as a signal level. A potential target of 3.39 is indicated when measuring the triangle pattern.

There is also a symmetrical triangle forming in the Dubai Financial Market (DFM), just below resistance of the 200-day ema (now at 2.164). Therefore, a decisive breakout of the pattern will also be a breakout above the 200-day ema, an additional bullish signal.

The initial price level to watch is around 2.11, but that could change as the pattern continues to develop. A more clear confirmation is given above 2.19, and then finally above 2.24. The stock would then be targeting approximately 3.46, based on a measure of the pattern. Year-to-date DFM is down 1.0 per cent, and closed at 1.99 last week, up 3.65 per cent for the week.

Finally, there is Deyaar Development. It ended last week at 0.828, up 2.35 per cent. So far for 2015 the stock is down 2.59 per cent. A bullish breakout is first indicated on a move above 0.908, further confirmed above 0.93, and finally above 0.951. An upside breakout would have it next targeting around 3.26, when only using the triangle pattern to derive a target.

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