Dubai

Last week the Dubai Financial Market General Index (DFMGI) was up 19.00 or 0.55 per cent to close at 3,480.43. Although not a big move, this was the best performance in seven weeks. For five of the past seven weeks the index was down while it was flat for one week. There were 11 advancing issues and 23 declining and volume dropped to its lowest level since late-July. The relative stronger performance last week is not enough to confirm a bottom for the current decline, but it does indicate the possibility for the beginning of a lessening of selling pressure.

There was a lower weekly low and lower weekly high last week as the DFMGI reached a low of 3,435.14 on Wednesday. Strength was subsequently seen on Thursday with the index jumping 0.96 per cent to end near the week’s high of 3,481.17. Volume spiked to a two-week high during the intra-day rally.

Although last week ended with a show of strength technical damage done over the past couple of weeks has not yet been resolved. For the past two weeks the index has closed below its long-term uptrend line on a weekly basis, and it has closed below the 200-day exponential moving average (ema) on a daily basis for most of the past three weeks. The DFMGI had held well above the 200-day ema since moving above it in early-December.

The most immediate resistance zone the index has to contend with is from approximately 3,499.79 (200-day ema) to 3,522.26 (three-week high). A daily close above the three-week high will be the first confirmation that strength seen on Thursday may be sustainable. Thereafter, further upside is likely with the index next targeting the four-week high around 3,583.79. Until there is a daily close above the three-week high resistance can be anticipated around the above noted resistance zone.

Even though the index moved lower overall downside momentum has diminished over the past several weeks. Therefore, even though a drop below last week’s low of 3,435.14 shows weakness the next support zone starts around 3,377.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) was down 51.75 or 1.15 per cent last week to end at 4,443.53. Market breadth was about even with 16 advancing stocks and 18 declining, while volume reached a four-week high.

Overall, it looks the ADI has completed its retracement off the February peak and continues to show signs of creating a bottom. It has been finding support around the long-term uptrend line for the past several weeks. This is potentially bullish behaviour as long as the line continues to hold as support going forward.

Last week’s low was 4,399.76. A daily close below that price level puts the three week low of 4,402.08 in sight. That’s the key support level that must hold and if not we are not to see further weakness in the near-term.

On the upside, watch for a daily close above the three-week high of 4,512.82 to give the next bullish confirmation. A test of the 2017 high of 4,715.05 then becomes possible, and of course the potential for a move to a new high for the year. Slightly lower than that peak is a potential resistance zone around 4,669. Before that there is a resistance zone around 4,611.

Stocks to watch

There’s a pattern of price behaviour that’s been developing in Shuaa Capital recently that can be used for a short-term opportunity. Alternatively, a failure of the pattern could be the beginning of further declines thereby increasing risk for holders of the stock.

Shuaa is the second best performer in the Dubai market over the past 12 months having risen 208.5 per cent during that time, and the third best in the most recent six months, up 100.5 per cent. Last week Shuaa was down 5.32 per cent to close at 1.78.

Shuaa took off out of a four-month sideways base back in early-September as it jumped above 0.67 and then took off exhibiting strong upward momentum. In 11 weeks the stock was up 170 per cent when it hit resistance at 1.82 in November. Since then the stock has continued to trend higher overall but with much slower momentum. Advances above prior swing highs are followed relatively quickly by pull backs to support before the trend continues upward.

The most recent swing high was seen at 2.02 three weeks ago. That’s the highest price for the stock since October 2009. A retracement followed over the past 13 days and we may have bottomed last week or be close to a bottom.

Since the November peak Shuaa has tested support of the 55-day ema at least four times. Each time it held and was followed by a rally. Two of those rallies led to new highs. Last week’s low was 1.73 and the 55-day ema is at 1.72. Watch for new signs of strength off that low in anticipation of a move towards the most recent swing high.

At the same time a decisive drop below the 55-day ema and daily close below it may signal further weakness as that will be the first time that has occurred since late-August 2016.

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