Dubai: The Dubai Financial Market General Index (DFMGI) rose by 59.42 or 2.11 per cent last week to end at 2,880.42. This was the first positive week in four. There were 28 advancing issues and 11 declining, while volume dipped slightly below the previous week.
For the past eight weeks or so downward momentum has been slowing as measured by the Relative Strength Index (RSI) momentum oscillator with the indicator now showing a bullish divergence. The indicator bottomed at 19.2 nine weeks ago and has been rising since, ending last week back above the 30 oversold level to 33.1. At the low the RSI was the most oversold since the DFMGI bottom in January 2016. Even though price can stay oversold and under pressure for some time when the characteristics of the RSI are combined with recent price behaviour the near-term bullish argument becomes stronger.
Last week’s low of 2,820.67 held above support of the previous week which is at 2,805.44. This creates an inside week where the high to low range was contained within the borders of the prior week’s range. The pattern suggests that selling pressure has diminished as support held above the prior week’s low.
The DFMGI has been in a somewhat steady decline for the past eight months or so and for that reason alone we could see a decent bounce. The last time the index saw similar behaviour was back in 2008. Therefore, arguably the odds now favour a bounce.
A daily close above last week’s high of 2,881.76 will signal a bullish continuation with the 2,977 pivot the first notable target, followed by the 2,993 price area. The key pivot is at the swing high and four-week high of 3,109.30. If the DFMGI can get above there then it has a chance to continue higher.
Abu Dhabi
Last week the Abu Dhabi Securities Exchange General Index (ADI) advanced by 43.17 or 0.95 per cent to close at 4,603.20. Market breadth was even with 15 stocks advancing and the same declining, while volume was muted, near a six-month low.
A bull trend continuation signal was generated as the index rallied above the prior week’s high of 4,578.47 thereby furthering the bounce off the 4,494.02 swing low from three weeks ago. Given the daily behaviour of the index it’s reasonable to anticipate a continuation of the bounce. After starting the week by hitting a slightly new trend high of 4,622.29 the ADI then pulled back to support of 4,565.20 before rallying into Wednesday and Thursday.
As long as last week’s low is not broken to the downside the short-term bull trend is expected to continue. Therefore, short-term weakness can be used to accumulate positions in anticipation of a continuation of the short-term uptrend that is now developing.
Following a break above last week’s high the next key target zone will be around 4,649 to 4,651. This is where the 61.8 per cent Fibonacci retracement completes and it matches the swing high resistance zone from January.
Nevertheless, there is a higher target which looks to have a good chance of being reached given the characteristics of the initial leg up off last month’s swing low. The second leg up of the trend starts at last week’s low and it will match the advance of the first leg at 4,693.47. That’s the second target following a bull trend continuation as noted above. Higher up is a price resistance zone that starts from approximately 4,728 and goes up to the 2018 high (almost three-year high) of 4,745.23.
Daily Chart
Stocks to Watch
Gulf Finance Group was the second best performer last week in the Dubai market, rising 0.12 or 9.2 per cent to close at 1.43. Even though the stock finished at the high of the week the week ended with an inside week. This means there was no bullish or bearish confirmation as neither the two-week high or low was broken. Last week’s high was 1.43 and the low was 1.29.
A move above last week’s high gives the next sign of strength but the more important price level is the two-week high at 1.44. That high needs to be exceeded and then followed by a daily close above it before we have the next bullish signal.
More important than last week’s relative performance is the potential head and shoulders trend reversal pattern that may be forming in the weekly chart of Gulf Finance. The 1.26 swing low from two weeks goes may have established the right shoulder of the pattern. This is a classic bullish trend reversal pattern in technical analysis that occurs somewhat frequently in any freely traded financial market. However, for the pattern to be valid a breakout trigger needs to occur. Until then the pattern is just potentially bullish.
In this case a breakout occurs on a decisive rally above the most recent swing high of 1.52 which was reached seven weeks ago. A breakout is confirmed once there is a daily close above the price pivot level. By measuring the size of the pattern in regards to price we can determine a potential minimum upside target once a breakout occurs. That initial minimum target is approximately 1.85.
Bruce Powers, CMT, is a technical analyst and global market strategist.