The Dubai Financial Market General Index (DFMGI) gained 61.17 or 2.65 per cent to close at 2,366.79. Strength was widespread with 23 advancing issues and only seven declining. Also strong was volume which declined a bit from the prior week but was still at the second highest level in at least three years.

The recent pullback in the DFMGI off the 2,367.19 peak from two weeks ago was 4.3 per cent. Given the advance of 30.1 per cent, measured from the swing low of 1,819.46 hit at the beginning of April, this was a relatively shallow retracement and reflects remaining upward momentum.

Although the DFMGI did not close at a new high for the uptrend it did manage to have a number of other positive developments. On both Wednesday and Thursday the index got above the most recent peak of 2,367.19. Also, the week ended at a new high closing price for the uptrend, at the top of the weekly range, and at the highest weekly close since early-November 2008.

Two weeks ago the DFMGI closed in the bottom quarter of its weekly range (seen on a weekly chart), reflecting a clear slowdown in upward momentum. In addition, the low of last week’s range fell below the prior week’s range for the first time in eight weeks. This type of price behavior will many times lead to a deeper decline. At the same time the bullish indications discussed in the prior paragraph are leaning towards the DFMGI going higher.

A daily close above last week’s high of 2,378.43 is now needed to show continuing strength. The index would then be heading towards 2,409, not much higher than current levels. That was where strong resistance was seen back in October 2009, which ended the initial reaction rally subsequent to the fall from the 2008 financial crisis. Next would be the 3,107 to 3,295 resistance zone, which consists of two Fibonacci retracement levels. The more significant higher resistance zone does not start until 3,624.

Last week’s low of 2,265.81 is near-term support. A daily close below that price level will indicate that further downside from there is likely. The first area to watch for support of some significance would then be around 2,183/71.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) rallied 102.52 or 2.96 per cent last week to close at 3,562.88. Market breadth was also bullish with 36 advancing issues and 10 declining. Volume declined from the previous two weeks but was still the fourth highest volume level of the at least the past several years.

The ADI is now in a range between resistance at 3,569.77 (recent peak) and support at 3,415.67. During its recent decline the ADI fell only 1.96 per cent before finding support at 3,415.67 and moving higher. It has not yet surpassed the recent peak, and it’s not yet clear whether it will do so. Or, whether another decline to below 3,415.67 will occur. However, given the potential for a new upside breakout in the DFMGI, the ADI could follow.

Upward momentum started to slow two weeks ago when a minor bearish candle occurred on the weekly chart. Further, the most recent peak hit a resistance zone ranging from approximately 3,552 to 3,578. So far, there has been some resistance seen. Whether its enough to turn the market lower at this point for a clear correction or whether the ADI will continue higher, remains to be seen.

A decisive daily close above 3,569.77 will have the ADI next targeting a resistance zone from approximately 3626 to 3723. That would also put it very close the the long-term seven-year downtrend line.

Near-term weekly support and the bottom of the trading range is at last week’s low of 3,415.67. A drop below that support will likely be followed by a deeper decline. The ADI could easily fall to at least 3,192.66, if not further. Lower support levels include a range from 3,069 to 2,935.61.

Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-portfolios.com