UAE markets end strong heading into 2014

Dubai: Last week the Dubai Financial Market General Index (DFMGI) advanced 32.37 or 0.93 per cent to close at 3,504.66. This was the smallest gain in eight weeks, which was when the current rally began. Regardless, the index did manage to once again close at a new high for the trend, and above the prior week’s high. A relatively smaller gain is one sign that upward momentum is slowing.

In addition, volume came in lower than the prior week (a short trading week) and at a five-week low. Further, the number of declining issues beat advancing at 20 to 15, respectively, not the ratio one would want to see when a market is moving to new highs. Although there is no sign that the trend might take a rest and pullback lower just yet, these indications are a sign for caution. The trend is getting tired while the odds for a decline, or at least a choppy period, are increasing.

Over the past 13 months the longest rally in the DFMGI has covered ten weeks. There’s a good chance this current rally could last as long, but the odds of it continuing much higher thereafter, without some pullback and consolidation first, is low. The long-term uptrend is heading into its third year, starting from the January 2012 bottom, there was a greater than 100 per cent gain last year, a significant move in that period of time, and there have been relatively short retracements that occurred over the last year. All of the above point to the likelihood of at least a short-term top, followed by a correction, within the next one to three weeks or so.

The DFMGI continues to target the next potential resistance zone, starting around 3,624.67 (3.4 per cent above last week’s close), and up to approximately 4,060.

The bullish structure of the eight-week uptrend remains intact as long as the index stays above last week’s low of 3,371.7. A decline below that level this week would put potential support around 3,279 in sight.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) gained 58.59 or 1.34 per cent last week to close at 4,417.79, marking a new high for the uptrend. Market breadth remained bullish, with 33 advancing issues versus 14 declining, and volume improved over the previous week, reaching the second highest level of the past five years. Last week’s action is very bullish for the ADI in the medium-term, but there are a couple of signs for caution in the short-term.

Even though the ADI reached a new high, it closed further below the high for the week than has been seen over the prior five weeks. This is one sign of slowing upward momentum, especially when it occurred with very high investor participation, as indicated by the significant volume. A similar perspective can be seen on the daily chart as the last four days of the week went relatively sideways, forming a short-term consolidation pattern. Further, the relative strength index (RSI) on the daily chart, a measure of momentum, reached a high level seen only once in the past five years, indicating very overbought conditions. Keep in mind that reaching high overbought levels on its own is not enough to signal a downturn. Markets can still go higher thereafter, and they frequently do. But, it is a sign to be cautious and prepared for weakness if it does come.

Weakness is signalled on a fall below last week’s low of 4,356.24. The ADI would then target 4,185.65.

On the upside, a daily close above last week’s high of 4,462.87 is needed for further signs of strength, with the ADI then targeting the 4,553 price area.

Stocks to watch

Since first hitting a high of 12.10 in May 2013 etisalat has been consolidating and has formed a bullish ascending triangle formation on its chart. Again last week resistance at 12.10 was tested and it held, with the stock closing up 1.28 per cent to 11.90. Volume improved to an eighteen-week high on the breakout attempt. Many times a volume spike within a well-defined consolidation pattern is an early indicator to a breakout.

Although etisalat may spend more time consolidating within the triangle pattern it deserves to be watched as it is not extended like the market index. Therefore it has the potential to move higher even if the broader market does not.

A breakout is indicated on a daily close above 12.10. The stock then targets 13.30, the objective identified from the triangle pattern. The next resistance would then be around 16.81. Support is at 11.20, with a daily close below that price negating the above bullish scenario.

Emirate Integrated Telecommunications (du) has a similar bullish triangle pattern. The stock was down 0.75 per cent last week ending at 6.60. A breakout occurs above 6.90. Volume reached the second highest level of the past eighteen weeks. The triangle indicates a target of at least 8.10 if a breakout occurs. That would put the stock at a record high (above 8.06).

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