Dubai: The Dubai Financial Market General Index (DFMGI) pulled back by 93.90 or 2.02 per cent last week to close at 4,563.39. Volume dropped from the prior week, reaching a six-week low, while 25 issues declined and only four advanced.

The second leg of an uptrend, off the 4,231.12 corrective swing low from mid-October, has not yet triggered a trend continuation. Resistance was met early in the week at 4,698.28, right at the 55-day exponential moving average (ema), and below 4,727.97, the prior swing high. That swing needs to be taken out to confirm a continuation of the uptrend.

Regardless, nothing has really changed overall in the chart for the DFMGI, other than there is now a small symmetrical triangle consolidation pattern that has formed over the past few weeks. This pattern reflects a decline in the high to low range over time and when price breaks out of the range momentum has a tendency to increase noticeably.

A bullish breakout is first indicated above last week’s high of 4,698.28, with further confirmation of strength above 4,727.97. On the downside a drop below 4,385 signals further weakness, while a break below 4,231.12 also indicates a breakdown of the large symmetrical triangle consolidation pattern discussed over the past several weeks. For now, the odds continue to favour a bullish breakout of the small triangle, a continuation of the short-term uptrend, and therefore further development of the large multi month triangle pattern.

On a bullish breakout of the small triangle the first upside target would be around 4,882. That’s where the DFMGI completes a measured move, where the second leg up of the trend matches the price appreciation of the first leg. The second leg up starts at the 4,385 swing low from three weeks ago.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) held steady last week, increasing by only 4.43 or 0.09 per cent and ending at 4,957.79. Volume dropped significantly from the prior week and was back to normal levels of the past several months. Market breadth was somewhat on the bearish side, with 21 declining issues and 16 advancing.

The ADI exceeded the prior swing high of 4,969.28 last week signalling a continuation of the short-term uptrend, but it did not close above it yet on a daily basis. That’s what’s needed next to give confirmation of the first signal. Last week’s close is not far below that and there’s a good chance a continuation will occur this week.

We’re now in the second leg up of a trend that started from the 4,688.36 corrective low reach in October. If the second leg up matches the first then the ADI would at least reach around 5,071. There is also a resistance zone starting around that price level that goes up to the 5,241 peak from September.

Short-term support is at last week’s low of 4,903.19. If exceeded to the downside then the ADI could drop lower. The next levels to watch would then be around 4,790.28, followed by 4,688.36. In the bigger picture the ADI remains within a large multi-month symmetrical triangle consolidation pattern. A drop below the higher price level would be the first sign that a breakdown from this pattern is occurring. This would be more likely on a decline below the lower price level and confirmed bearish on a daily close below it.

Stocks to watch

For more than six months Emirates NBD has been forming a large basing pattern on its chart, in the form of a symmetrical triangle pattern. The high of the pattern is at 10.45, the peak reached in May. If you look at a chart of Emirates NBD you’ll notice an earlier large symmetrical triangle pattern that formed over much of 2013. The subsequent bullish breakout and rally saw that stock appreciate over 45 per cent until the May 2014 peak.

One of the interesting things in the current pattern is the number of times prices has pushed up against the downtrend line at the top of the pattern, which defines resistance. This strengthens the significance of that line and increases the odds that Emirates NBD will accelerate higher once a bullish breakout occurs. Once a stock breaks out of a constructive long-term base (within a larger uptrend) it can many times be the beginning of a new prolonged move higher.

Last week, once again, the stock pushed up against that line and closed at it, at 9.95. At this point a decisive move above 10.00 will signal a bullish breakout of for the stock, with strength then confirmed above 10.20, and finally above the May peak of 10.45. Ideally, a breakout would be accompanied by a noticeable increase in daily volume.

By taking the depth of the pattern of approximately 2.92, and adding that price distance to the breakout level of 10.50, we come to a minimum potential target of 13.42 for the stock.

If Emirates NBD continues to consolidate within the triangle pattern, rather than breaking out in the near future, we’ll see a decline below last week’s low of 9.55.

Bruce Powers, CMT, is president of WideVision and chief technical analyst at www.MarketsToday.net. He is based in Dubai.