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Abu Dhabi still trying to breakout

Dubai volumes at four-week low

Gulf News

Dubai

The Dubai Financial Market General Index (DFMGI) dipped by 12.31 or 0.40 per cent last week to close at 3,082.09. There were 18 advancing issues and 21 declining, while volume fell to a four-week low.

An attempt to go higher was made early last week as the index reached a four-week high of 3,153.06 and it closed above the previous three weeks on a daily basis. Nevertheless, that advance didn’t last long as the index was quickly pushed back down to end the week at a new weekly closing low for the six-month falling trend. The four-week high daily close provided an initial bullish signal causing some investors to be whipsawed as the DFMGI fell to a new trend low of 3,056.55 before ending the week a little higher but still at the lowest close of the week.

What this tells us is that the index failed to complete a bullish reversal and therefore downward pressure remains. At the same time is has been sitting around the same support zone for the past month and has not yet fallen through it. Last week’s low is now the lower border of the sideways bottom range. Also, the top of the range is last week’s high.

A decisive rally and subsequent daily close above last week’s high will provide the next short-term bullish signal. However, decisive is the key word here as there should be evidence of strength coming into the market, either with a strong daily closing price, higher volume, or clear upward momentum. Otherwise, the market is prone to fail the new high attempt as it did last week.

With signs of strength the DFMGI would first be heading towards the 3,216 resistance area, followed by 3,264. The 3,216 area was previously support from two and-a-half year wide ranging consolidation zone.

Abu Dhabi Market General IndexAbu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) advanced by 53.53 or 1.15 per cent to close at 4,706. Volume was at a five-week low and market breadth was mixed, with 18 advancing issues and 15 declining.

Again, on a technical basis, the ADI is close to opposite the DFMGI. As of last week the ADI has had its strongest weekly closing price since August 2015! This seems to show that the index wants to go higher. We need to see further signs of strength, but for the past three weeks the index has been pushing up against a resistance zone and it close up against it and at a new weekly closing high last week. This is bullish behaviour.

Since approaching the January 2017 highs several weeks ago the ADI has stayed relatively strong, moving to a new trend high (for the rising trend starting off the 2017 low) two weeks ago (4,720.79) and testing that high last week. Last week’s high was 4,721.32. A decisive rally above last week’s high will give the next bullish signal with further signs of strength then required. Once there is a daily close above the prior trend high the upside breakout is confirmed.

Since an upside breakout would be from a multi-year consolidation pattern there is long-term significance to the breakout. The first obvious target would be around the 2015 peak of 4,902. If the ADI can breach that high on a daily closing basis, the index will have a chance of at least testing if not exceeding the record highs from 2014. At the same time, a serious test of the 2014 highs could take some time. The resistance zone from the 2014 tops can be considered to be around 5,000 to 5,245.

On the downside, last week’s low of 4,652.45 is near-term support. If the index closes below that low on a daily basis the above bullish scenario becomes less likely, at least for now.

Stocks to watch

The second best performing stock last week in the Abu Dhabi market was Abu Dhabi National Building for Materials Co. (BILD). It was up 0.05 or 10.09 per cent to close at 0.54 (also week’s high). This one is a second tier in regards to volume but it’s chart does look like it might be reach to join the strength of the wider market, especially if the ADI is able to breakout to a new high.

About five weeks ago BILD found a low at 0.38, which could be the second low of a double bottom reversal pattern. Subsequently, the 0.46 low from a week ago looks to have ended the most recent retracement for the stock as last week’s closing price was at a four-week high.

Last week’s low of 0.49 is near-term support and pullbacks towards that low can be used to find lower prices for entry and to hop on the uptrend that is now developing. If the uptrend continues then the BILD next heads towards the monthly high of 0.58, followed by the February high of 0.61, and then the January high of 0.65. That January high is also a swing high as it’s where resistance was seen following the rally off the second bottom of 0.38 mentioned above.

BILD has the potential to breakout above the January high and trigger a bullish trend continuation. In that case that stock would next target approximately 0.75.

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

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