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Abu Dhabi tries to hold on to a multi-year breakout

First Abu Dhabi Bank among stocks to watch

Gulf News

Dubai: The Dubai Financial Market General Index (DFMGI) was close to flat last week, falling by only 3.49 or 0.11 per cent to close at 3,038.23. Market breadth leaned on the bearish side, but not by much. There were 15 advancing issues and 19 declining, while volume dipped to its lowest level in eight weeks.

For the past five weeks or so the DFMGI has been trying to complete a bottom that has a chance of holding, and eventually leads to a sustainable rally. So far it has made a decent attempt, having jumped as much as 8.3 per cent off the most recent bottom of 2,870.07, as of last week’s high of 3,109.30.

Now, we move into the pullback phase as last week closed weak, in the bottom quarter of the week’s range. Closing in the lower area of the week’s range is short-term bearish but the likelihood of a deeper pullback doesn’t kick in until last week’s low of 3,033.17 is broken. Some backing and filling at this point is a positive as it provides an opportunity to create a more solid bottom.

A decline down to at least the 2,977.63 price area would not be unusual as that is where weekly resistance was seen four weeks ago and now it might be where we see support. Just below there is the two-week support area around 2,950.27. It presents another area where we may see clear signs of support.

Alternatively, if the index can get above last week’s high of 3,109.30 and close above it on a daily basis, there’s a chance for the five-week uptrend continues in the near term. The next key higher pivot is the swing high of 3,153.06 from mid-April. A daily close above that price level will more securely violate the downtrend price structure and therefore give greater credence to the developing uptrend.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) was up for the fourth week in a row, closing higher by 52.15 or 1.12 per cent to end at 4,714.73. Volume dipped slightly last week while market breadth leaned just barely on the bullish side, with 18 advancing issues and 15 declining.

The big news though is that the index broke out of a multi-year consolidation range as it rallied above the prior high of 4,715.05 and closed above it on a daily basis. This is the first sign for a bullish trend continuation for the two-and-a-half year uptrend. Additional bullish signs are now needed as last week’s close was just below the 4,715.05 high.

The high for the week was 4,745.23 and a daily close above it would be one sign of additional strength. Also, it would be nice to see volume start to increase at the same time. The next key if we do see additional signs of strength is around the July 2015 swing high of 4,902.

Even though there was a significant long-term breakout last week the ADI remains in a prior resistance zone. Resistance could be seen again subsequently dropping the index back down. The index has been rising for the past four weeks as it encounters the long-term resistance zone. It may need to consolidate a bit and rest before it makes a successful run at last week’s high, if it is to do so.

Near-term support is at last week’s low of 4,633.20, followed by the two and three-week low around 4,553 to 4,537, respectively.

Stocks to watch

First Abu Dhabi Bank had its highest weekly close since mid-February 2015 with the stock rising 1.20 or 2.85 per cent last week to end at 12.65. This follows a rally above the prior trend high of 12.65 to 12.70, which is where some resistance was seen. Although First Abu Dhabi hasn’t yet confirmed a strong breakout it’s not yet done. Such as strong close along with an initial breakout trigger shows that at least so far the stock is poised to go higher.

A daily close above last week’s high is now needed for confirmation of the breakout. At that point a continuation signal for a long-term uptrend will be confirmed. Subsequently, we need to continue to see further signs of strength as price progresses higher, if it is to do so.

The most recent swing low of 11.30 is the near-term low support area as that swing defines the uptrend price structure. At this point, that structure is retained as long as price stays above 11.30. It is important as a trend has a tendency to continue for a while and therefore if the trend pattern is retained we have a better chance of seeing the trend continue higher. Also, there is support around the uptrend line, which at this point is just slightly above the 11.30 price support zone. A drop below is a sign of weakness.

The next upside target price zone is around 13.68 to 14.00. That higher number is where First Abu Dhabi Bank made its last swing high before accelerating to the downside during a 16-month fall to 6.86, reached in January 2016. As of last week’s 12.70 the stock had progressed as much as 85.1 per cent off that low. Following that is the record high of 15.68.

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

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