Dubai: The Dubai Financial Market General Index (DFMGI) gained 45.92 or 1.13 per cent last week to close at 4,118.60. Performance was mixed among individual listings, with 17 advancing and 16 declining, while volume fell to a seven-week low.

Nothing of significance has changed on a technical basis. Volatility has declined over the past two weeks as the index consolidates, and holds above a support area represented by the 200-day exponential moving average (ema) (now at 4,035), the 55-week ema (at 4,027.12), and previous resistance (now support). So far the pullback from the recent 4,253.28 peak has been mild, with the DFMGI falling as much as six per cent over three weeks. Support was found at 3,996.72. That low is the key support level to watch, as a break below it signals further declines.

Overall, the index is showing underlying strength given the recent low volatility and shallow pullback, to a key support zone. In addition, last week’s high exceeded the high of the prior week, and the low was higher than the prior week, a short-term bullish sign.

The odds continue to favour a move higher. A break above last week’s high of 4,174.42 is the next sign of strength, but a breach above the 4,253.28 peak is needed for a bullish trend continuation signal.

The DFMGI would then be targeting 4,385, previous support from October 2014, followed by a resistance zone all he way up to 4,728. That resistance price zone is likely to match the location of the long-term downtrend line, which comes down from the May 2014 peak, depending on when price rallies up to it, if it is to do so. In addition, a 61.8 per cent Fibonacci retracement, of the long-term downtrend (from May 2014 high), completes at 4,484.44, and provides a more specific target price level.

On the downside, if the 3,996.72 swing low is exceeded to the downside then a deeper pullback is in place. The index would then be targeting support around 3,869 to 3,863, which is prior support from March 2014 and the 38.2 per cent Fibonacci retracement level for the eight-week uptrend. That zone is followed by 3,743 to 3,731, the spike low from July 2014 and the 50 per cent trend retracement level, respectively.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) advanced by only 20.67 or 0.45 per cent to end at 4,650.66. Volume fell to a nine-week low, while there were 23 advancing issues and 18 declining.

The ADI began to pull back a month ago after hitting a resistance zone and failing to decisively break through it. That was the third such attempt since the beginning of 2014. Now that there has been three failed attempts to break out higher, the price zone can be identified from around 4,701 to 4,723.41 (April peak). Even though it wasn’t exact, that rally is considered to have completed a 61.8 per cent Fibonacci retracement of the long-term downtrend, which would have been at 4,728.61.

A daily close above that price zone continues to be needed to provide a bullish trend continuation signal. Such a move would also signal a bullish breakout of an ascending triangle pattern, a potentially more powerful bullish signal given that it has taken a number of months to form. The DFMGI broke out of a similar bullish pattern on April 16. The next target would then start around 4,790, previous support from November 2014. Further up is 5,004, a peak from November 2014.

Alternatively, if the recent swing low of 4,534.96 is broken to the downside the ADI heads towards the 50 per cent retracement zone of the nine-week uptrend, which is at 4,487.80. The next Fibonacci retracement level, 61.8 per cent, is then at 4,432.19. Also watch the 4,454.50 price area for signs of support, as it was support at the beginning of February.

Stocks to watch

There are two stocks that may be starting to break out from bullish flag patterns. The first is Emaar Properties. Emaar was up 4.33 per cent last week to close at 8.20. It was the fifth best performer in Dubai last week. A breakout of the flag continuation pattern occurred as Emaar busted above 8.00. The breakout is further confirmed on a move above the recent 8.39 peak. Just based on looking at the flag pattern, the minimum target would be around 8.71.

Damac Properties also has a bullish flag pattern that has formed on its chart. Last week the stock was up 3.91 per cent to close at 3.19, with the breakout occurring on trade above 3.16. If Damac can get above its record high of 3.43 then the breakout is further confirmed. A minimum target of

3.76 is arrived at by measuring the size of the move prior to the flag forming and adding that to the low of the pullback that takes the form of a flag.

 

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