Dubai

Last week the Dubai Financial Market General Index (DFMGI) fell by 27.66 points or 0.6 per cent to close at 4,545.39. Volume was about equal to the prior week, while there were 20 gainers and 14 decliners.

Last week’s high was 4,727.97, an advance of 3.4 per cent for the week, before profit taking took hold. That high is the short-term resistance level to watch. After hitting that high the DFMGI (Dubai Financial Market General Index) weakened into Friday’s close, ending at the low for the week, while volume also fell. Not the type of performance that engenders confidence in the bounce that started two weeks ago, but only of short-term significance. Two weeks ago was when the DFMGI completed a 18.5 per cent correction at 4,231.12. That low, along with the 55-week exponential moving average (ema), now at 4,236.57, marks the more critical support area.

At this point, the odds are good that the DFMGI would see higher prices before it falls below 4,231.12, given the large symmetrical triangle consolidation pattern that is forming in its chart (discussed in some detail last week). Therefore, further weakness from last week is likely to be met with support from buyers on the way down. One area to watch for support is around 4,448. That’s where the 200-day ema lies.

A move above last week’s high signals a continuation of the three-week uptrend. The DFMGI would then be targeting 4,935, and next the top trend line of the triangle pattern, currently around 5,059. There is a resistance zone up to 5,193, the most recent swing high. A decisive move above that price level confirms a bullish breakout of the triangle, and would likely be the beginning of a new leg higher for the long-term uptrend. A daily close above the multi year peak of 5,406.52, reached in May, would be the first target.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) gained 31.62 or 0.65 per cent last week to close at 4,861.45. There were 16 issues that advanced while 19 declined. Volume fell slightly below the prior week’s level.

ADI gained for the first four days of the week, then selling came in on Thursday, with the index closing at a three-day low on a relatively wide ranging day. This type of behaviour would indicate more weakness heading into this week. But, as with the DFMGI, it should be part of a short-term pull back from the bounce off the swing low of 4,688.36 hit two weeks ago. That low completed a 10.5 per cent correction in the ADI.

A large symmetrical triangle pattern is also forming in the chart of the ADI, and points to the likelihood that the index will trade within the range represented by this consolidation pattern. Eventually, an upside or downside breakout will occur, pointing to the direction of the next trend. Given this pattern, a pull back from here is likely to find support before the corrective low from two weeks ago. If last Thursday’s pull back continues into this week, the ADI may see selling down to its 200-day ema, which is currently at 4,800.

Once support is found, the odds are good that the index would then be heading back towards the top of the consolidation pattern. The top of the pattern is from approximately 5,201 to 5,241, with a move above the higher level signalling a bullish breakout.

Stocks to Watch

There are a number of stocks that look to be forming the second bottom of potential double bottom reversal patterns. If the wider market follows through on the general scenario’s discussed above, i.e. short-term weakening into support, then a turn up towards the tops of the triangle patterns, these stocks look to have good risk to reward scenarios. In each case, the second potential bottom is noted, but keep in mind that it may be too early yet and a new second bottom could form. Also, a break below the first bottom, invalidates the potential bullish set-up.

Eshraq Properties hit a low of Dh1.01 back at the beginning of July, forming the first bottom. The second was hit at Dh1.04 in mid-October. A rally above the two-week high of Dh1.16 is a sign of strength, which could then lead to higher prices. A minimum target would be around Dh1.53. Eshraq ended last week at Dh1.07.

Islamic Arab Insurance put in its first bottom at 0.643 in early-July, and its second at 0.641 two weeks ago. Last week the stock closed at 0.69. A move above 0.739 indicates strength coming back into the stock. The minimum target would then be around 0.84 to 0.89.

National Central Cooling reached its first bottom at Dh1.30 in July, then its second at Dh1.35. Last week it closed at Dh1.48. Strength is first seen on trade above Dh1.54, but confidence is higher above Dh1.56. It then targets Dh1.85.

Dana Gas reached its first bottom of Dh0.56 in July, then its second two weeks ago at Dh0.58. A rally above Dh0.64 signals a move higher, and a first target of Dh0.74. Last week the stock closed at Dh0.60.

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