For the first full week of the new year, the Dubai Financial Market General Index (DFMGI) advanced by 19.63 or 0.79 per cent to close at 2,545.65. There were 22 advancing issues and 15 declining, while volume reached a four-week high.

The counter-trend rally in the DFMGI continued last week as the index exceeded the prior week’s high of 2,539.96 and closed above it on a weekly basis. For this week, a continuation of the rally is first indicated on a move above last week’s high of 2,551.44, and it is confirmed on a daily close above that price level.

The index will continue to face headwinds following a 34.07 per cent decline as of the December trend low of 2,429.12 reached three weeks ago. That drop is measured from the October 2017 swing high of 3,684.19.

Since the December low, the index has advanced and is starting to show the beginning of an uptrend as there is the first iteration of a series of higher weekly highs and higher weekly lows. Changes in momentum are supportive of a continuation of the move as there is a bullish divergence in the 14-day Relative Strength Index (RSI) oscillator. This oscillator measures changes in price momentum and it shows momentum started to turn up before price turned up, which is bullish.

It’s apparent when looking at a daily price chart that the index accelerated to the downside around late November thereby decreasing the slope of the decline. This put the index into an oversold condition where we’re seeing a counter-reaction to that drop now as price swings back in the other direction.

The next key resistance zone is close by around 2,590 to 2,603. If a daily close can occur above that price zone, then the DFMGI has a chance of advancing further and will next target previous support around 2,706.57. That prior low starts a consolidation range going up to the swing highs of 2,833.34 to 2,854.49.

Given the price structure of the long-term downtrend, as seen in a daily chart, a decisive move above 2,854.49 would be needed to start to switch the outlook from an overall bearish environment to bullish. In other words, the dominant intermediate-term outlook remains bearish unless there is a daily close above that high. At that point the downtrend structure of lower swing highs and lower swing lows would be violated, and a potential bullish reversal would be in the works. This means that the current counter-trend rally can be anticipated to eventually fail and that the downtrend will resume unless there is a daily close above 2,854.49.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) was up 64.17 or 1.31 per cent last week to end at 4,962.37. Performance was positive even as market breadth was negative, as there were 25 advancing issues and 31 declining. Volume was down slightly from the previous week.

Overall, the ADI has been holding up well given the potential for further weakness once it dropped below support of 4,836.08 in late-October. The drop was followed by a month of relatively sideways consolidation until the first signs of an upside breakout two weeks ago. Last week’s advance continued the breakout and the index closed strong, with the 4,962.80 high for the week almost matching the week’s closing price.

This puts the ADI’s dominant long-term bullish pattern of higher swing highs and higher swing lows again in play. Last week’s close is now back above the multi-year swing high of 4,902.09 from July 2015. It was first breached in August of last year before the 2019 peak of 5,079.97 was hit eight weeks ago. If upward momentum can continue over the next few weeks the ADI has a good chance of breaking out above the peak and continuing to trend higher.

Regardless, if support of last week’s low at 4,894.35 is broken to the downside the above bullish scenario will be postponed. As of last week, the index is in the middle of a prior consolidation range from last September to November. There remains a possibility that resistance will be seen in the range and halt what so far has been an enthusiastic two-week advance.

Stocks to watch

Amlak Finance has been one of the most beaten down stocks in the Dubai market. It has fallen as much as 97.9 per cent as of the 0.321 low hit five weeks ago. That’s measured from the record high of 15.20 reached in September 2005. Last week the stock was the fourth best performer in the Dubai market, rising 0.03 or 8.1 per cent to close at 0.40.

What makes Amlak interesting now, is that a double bottom trend reversal pattern triggered on the daily chart last week. The bullish breakout occurred on a move above 0.405 with weekly volume rising to a three-week high. Moreover, there is a bullish divergence with the 14-day RSI. Nevertheless, confirmation of strength is needed with a daily close above the breakout price level. So far, the daily close has been at the level but not above it.

A bullish continuation of double bottom breakout is signalled on a move above last week’s high of 0.42. At that point Amlak first targets the 0.54 price area.

Bruce Powers, CMT, is a technical analyst and global market strategist.