Dubai: The Dubai Financial Market General Index (DFMGI) was flat last week, rising only 2.41 or 0.09 per cent to close at 2,757.73. There were 19 advancing issues against 15 declining, while volume jumped to its highest level in five weeks.
Last week the index fell to a new bear trend low of 2,708.42 earlier in the week before bouncing higher for the last three days of the week. By the time the week ended the index was almost exactly where it ended the prior week. Healthy volume under these circumstances may be pointing to further upside.
In the weekly chart this price behaviour has created a doji reversal candlestick pattern. The pattern reflects the dominance of sellers earlier in the week as the bear trend was extended to the downside. However, by the end of the week sentiment had changed as buying pressure was able to reverse the direction. That bullish reversal now has the potential for upside follow-through, at least in the short-term. Nevertheless, a bullish signal is needed with a rally above last week’s high of 2,770.60.
Keep in mind that the doji reversal one-week candle is short-term in nature and it doesn’t signify any significant reversal in the overall declining trend. At this point a daily close above a resistance ridge around 2,854.49 would first be needed to show strength, and then a daily close above the swing high of 2,986.36. That swing high forms part of the 12-month downtrend price structure of lower swing highs and lower swing lows.
An upside breach of 2,986.36 would violate that structure and would be bullish. In addition a breakout of a bullish descending wedge would also occur. The bullish wedge essentially is a form of consolidation that is falling and in this case would be a reversal wedge as opposed to a trend continuation wedge pattern.
The lows of last week and the past five weeks remain in a potential support zone identified by several advanced Fibonacci ratio levels and therefore provide some technical reason as to why last week’s low could continue to hold. Regardless, a drop below last week’s low is bearish.
The Abu Dhabi Securities Exchange General Index (ADI) was up by 20.97 or 0.42 per cent last week to end at 4,988.74. There were 17 advancing issues and 12 declining, while volume rose above the prior week and above the 20-week volume moving average.
Last week completed eight weeks that the ADI has been consolidating near highs in a relatively tight range. In general, this is bullish as it is occurring near the highs of the uptrend and it reflects sustained upward pressure by buyers. Selling pressure has not been enough to push price through the bottom of the range. This doesn’t mean the index continues higher but so far that looks to be the most likely scenario.
The consolidation pattern now present is a rectangle trend continuation pattern. It very well could continue to form before a breakout occurs and momentum picks up. Nevertheless, at this point a bullish breakout happens on a decisive rally above 5,039.83 (2018 high), and the breakout into a new 2018 high is confirmed on a daily close above that price level.
Even though the most likely scenario is a move higher, there remains the possibility of a downside breakout and deeper retracement. So far, the retracement off the 2018 peak has been a relatively mild 3.54 per cent. Support at the bottom of the rectangle is 4,859.21. If the ADI falls below that price level and then closes below it on a daily basis, further downside is likely.
Key support zones to watch in that case include monthly support of 4,797. However, the potentially more significant support zone is around 4,745 to 4,637.
Stocks to watch
Eshraq Properties was up 0.05 or 7.9 per cent last week to end at 0.616. The close for the week was the highest since mid-July and signals the possibility that Eshraq is starting to come up out of a 12-week bottoming phase.
A trend low of 0.5310 was reached four-weeks ago. That put the stock 59.15 per cent below its most recent significant peak of 1.30, which was hit in January 2017. A respectable correction for sure. The bear market is now in its 21 month and has retraced most of the prior uptrend that started from the January 2016 low of 0.41.
Last week’s high of 0.63 puts Eshraq right up against resistance of its long-term downtrend line that covers the full 21 month decline. This means that a decisive daily close above last week’s high will trigger a breakout of the falling trend line and a four-month high. A trend line breakout by itself is not the most reliable signal but when combined with the four-month breakout the near-term outlook for Eshraq looks brighter.
On a monthly basis, the stock has already reached a three-month high and October has a higher low than September. This is additional short-term bullish behaviour that points to a potential turn in sentiment. Near-term support is at last week’s low of 0.5670, followed by the three-week low of 0.5590.
Bruce Powers, CMT, is a technical analyst and global market strategist.