Neither UAE market exceeded the prior week’s high last week, and both markets ended the week lower. Even so, each did manage losses from earlier in the week and rally back to close near or above the 50 per cent level of its weekly range.

Dubai

Last week the Dubai Financial Market General Index (DFMGI) dropped by 251.71 or 5.13 per cent to close at 4,651.75, its steepest drop in four weeks. Most listings participated in the decline, with 28 falling and only eight advancing. Volume dropped slightly from the prior week, just barely reaching a four-week low.

Despite being down for the week, the DFMGI has managed to end each day at or just above support of the 55-day exponential moving average (ema), even after dropping below it within the day last Sunday. Eight days ago the index rallied above the 55ema for the first time in five weeks, also a five-week high. For the seven days before that one-day rally the 55ema had been acting as resistance.

This short-term behaviour of the DFMGI, relative to the 55ema, shows resistance now becoming support. It is the type of behaviour typically seen as an uptrend progresses, and also points to the likelihood that the dominant short-term sentiment within the market continues to be bullish. That would start to switch to short-term bearish on a daily close below last week’s low of 4,414.13.

There is further support for the above underlying bullish signs. The rally from eight days ago also put the index above its downtrend line, which comes down from the 5,406.62 peak hit eleven weeks ago. Over the past several trading days that trend line has been an area of support, along with the 55-day ema, as they have converged. Again, an indication that prior resistance (of the trend line), has now become support.

The fact that they have converged should also be noted, as it strengthens the potential significance of that support area (55-day ema now at 4,631.41), and therefore the probability that buyers will again dominate.

The two-week high of 4,935.24 is the resistance level to watch as a daily close above it would be telling as to the next direction. Until the DFMGI breaks above that resistance, or below last week’s low, it remains contained within those levels and would continue sideways, but with an upward bias, as discussed above.

A move above the two-week high would have the DFMGI next targeting the 5,191.50 swing high from eight week’s ago, while a daily close below last week’s low could see a decline back down to the 200-day ema, now at 3,845.53.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell 80.22 or 1.59 per cent last week to close at 4,952.96, the first decline in four weeks. Volume also fell noticeably, as it reached an eleven month low. Market breadth reflected the weakness in performance as there were 26 declining issues and 19 advancing.

Similar to what was seen in the DFMGI, the ADI had been hitting resistance of the 55-day ema for six days prior to breaking out to the upside nine-days ago, and then continuing higher. The area of the 55-day ema has identified a support zone since. It is now at 4,887.53.

Rather than converging with the downtrend line (not valid at this point given the chart pattern) as was seen in the DFMGI, it has merged with the original uptrend line coming up from the December 2012 lows. Original in that the line hasn’t been adjusted to account for the low of the recent correction. Further, the 100-day ema, another trend indicator, is also close at 4,840.14.

However, last week’s low of 4,818.50 is the support area of significance for the short-term. A daily close below it increases the likelihood of further weakness. The ADI would then be targeting 4,722, with a good chance it might test support of the 200-day ema, now at 4,591.68.

On the upside, a daily close above the two-week high of 5,037.16 would be needed for a bullish signal, with the ADI then heading towards a resistance zone from approximately 5,181 to 5,253.41 (peak of long-term uptrend).

Stocks to Watch

Even though Abu Dhabi Commercial Bank gained only 0.61 per cent last week it ended at a seven-week closing high, and the high for the week. This, while the wider market was weak, a sign of relative strength.

The stock closed at 8.30 and is now approaching weekly resistance at 8.33. A daily close above that resistance signals higher prices and a potential test of resistance around 9.38, the eight and a half year peak.

Over the past four months First Gulf Bank has formed a rectangle consolidation pattern on its chart. The top of the pattern or resistance has been at 17.95. Last week the stock just barely exceeded that prior high, rising to 18, before falling back into the pattern.

This was a bullish breakout attempt that so far has failed, as we have yet to see a decisive move above and subsequent close above 17.95. A break above 18, last week’s high, gives the next bullish signal. The rectangle projects a potential target of 20.90.

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