Dubai

Last week the Dubai Financial Market General Index (DFMGI) fell by 42.17 or 1.23 per cent to close at 3,378.02, a new weekly closing low for the downtrend. This is the fifth week in a row that the index has been either down by more than a per cent or up less than 0.10 per cent. There were only five advancing issues against 33 declining, while volume dropped to a three-week low.

A bearish trend continuation was triggered last week with the index falling below the prior week’s low of 3,380.16 to hit a low of 3,365.95. That’s a new low for the year. As of that low the DFMGI has corrected 10 per cent from the 2017 high of 3,738.69 reached fourteen weeks ago. It’s quickly moving within striking distance to match the percentage declines of the two prior major corrections that occurred over the past year and a half (since the 2016 January bottom). Those declines were 11.3 per cent and 11.8 per cent — swing high to swing low.

The current decline will match an 11.3 per cent drop at 3,318 and a 11.8 per cent decline at 3,298. Together those two price levels can be watched as a potential support zone. The reason is that there are frequently relationships and similarity between various price swings in a market.

On its own a daily close noticeably below 3,298 would be a sign of underlying weakness as the correction would exceed the maximum correction since the bottom occurred of 11.8 per cent. The chance for an eventual test of long-term support around 3,197 to 3,195 (thirteen month support) would increase thereafter.

Resistance on a weekly basis is at the two-week high of 3,421.52. A daily close above that price level is needed for the first short-term bullish signal. The DFMGI would then be heading towards the three-week high of 3,455.22, followed by the four-week high around 3,488.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 26.98 or 0.59 per cent to end at 4,581.30. There were 11 advancing issues and 17 declining, while volume dipped to a 21-week low.

Last week was an inside week, where the high-to-low range for the week was contained within the range of the prior week. This represents some degree of additional uncertainty from investors. The ADI has been progressing within a descending price range for most of this year, which by itself represents investor uncertainty.

At this point a potential upside breakout of the range would begin on a move above the two-week high of 4,627.77. Strength would then be further confirmed on a daily close above 4,655.81. That’s at the most recent minor swing high and at the downtrend line.

A drop below the two-week low of 4,560.33 gives the first sign of weakness that is likely to lead to further declines. There are two potential support zones to watch from there. Each is derived from prior weekly support. The first is around 4,508.35, and the second at 4,481.55.

Stocks to watch

Al Salam Bank Sudan was up 1.58 per cent last week to close at 1.93. The stock has been consolidating into a potentially bullish pennant pattern over the past four-plus months. This is a classic bullish pattern in technical analysis which has a tendency to breakout to the upside.

It starts with a strong decisive rally that eventually reaches a high. The rally is followed by a consolidation phase that takes the shape of a relatively small symmetrical triangle that forms near the top of the rally. For Al Salam Bank Sudan the pennant pattern can best be seen on the weekly chart.

In mid-January Al Salam Bank Sudan hit a high of 2.30. That ended an eleven-week 100 per cent advance that started from the 1.15 October low. A consolidation phase has followed and taken the form of a symmetrical triangle consolidation pattern. Given the shape of the pattern it could easily continue to evolve for another month or two before the stock is ready to breakout.

A downtrend line starting from the 2.30 top marks the upper boundary of the pattern and where resistance is likely to be seen as the pattern continues to evolve. The breakout is first signalled on a sharp move above that line. Price will vary depending on when the breakout occurs.

As with all patterns, they can fail. A failure in this case is first indicated on a decisive drop below 1.80.

Dubai Islamic Bank was down 0.69 per cent last week to end at 5.78. Over the past five weeks a potential bullish flag trend continuation pattern has formed on the daily chart. Support and the low of the pattern is currently at 5.72. This is the low of each of the past two weeks thereby creating a small double bottom trend reversal pattern.

What’s interesting is that a breakout above the two-week high of 5.84 will also signal a breakout of the larger and more significant flag pattern. Therefore, there is some alignment between the short-term and intermediate-term patterns. This increases the potential for a pickup in upward momentum if a breakout occurs.

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