Dubai: The Dubai Financial Market General Index (DFMGI) was up 13.55 or 0.39 per cent last week to close at 3,530.88. That puts the index 12.1 per cent higher for the year when compared to the close of 2015. There were 25 advancing issues and 15 declining, while volume rose above the prior week’s level.

The DFMGI has stabilised around support of 3,490.66 for the past week and a half or so, which matches support of the 21-day exponential moving average (ema), now at 3,497.45. Given the dynamics of the failed consolidation breakout from three weeks ago this is an interesting development. The upside breakout occurred out of a rectangle consolidation pattern, which is bullish. However, that week ended near the low of the week’s range and back inside the parameters of the consolidation pattern. That’s short-term bearish behaviour and negates the bullish potential of the breakout, at least for now. It also increases the chance for a few weeks or more of a pullback at a minimum.

The week following the breakout, two weeks ago, the DFMGI fell, but last week it did not go lower. Instead, we have an inside week where the week’s high to low range is contained within the range of the prior week. This is a form of consolidation that can be identified on the weekly chart. It provides us with two good price levels to use as an indicator for which direction the DFMGI may be heading next. Either the retracement off the 2016 high of 3,658.61 hit three weeks ago will continue into lower prices or a bounce and possibly a continuation of the six-week uptrend occurs.

A drop below last week’s low of 3,500.68 signals a potential continuation of the downtrend with the bearish signal confirmed on a daily close below the two-week low of 3,490.66. The next potential support zone would then be around 3,494 to 3,427, consisting of prior support along with the 50 per cent retracement level of the most recent uptrend, respectively. Further down is a support zone from approximately 3,372.40 (61.8 per cent Fibonacci retracement) to 3,361 (prior weekly support or resistance).

An upside breakout occurs on a rally above last week’s high of 3,559.83, with strength confirmed on a move above the two-week high at 3,588.17. The index will then face resistance from approximately 3,604 to the 2016 high at 3,658.61. A daily close needs to occur above that higher price level before there is a long-term bullish signal. That signal would indicate a continuation of the uptrend that began off January’s low.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) ended the year strong, up 109.55 or 2.47 per cent for the week to close at 4,546.37. That puts the ADI up 5.6 per cent for the year. Market breadth was bullish with 26 advancing issues and 12 declining, while volume popped to a three-week high.

It’s possible, but too early to say with certainty, that the retracement begun three weeks ago after hitting resistance at 4,589.91 could be coming to an end. A breakout of a bullish flag trend continuation pattern occurred last Thursday on 13-day high volume. In addition, the ADI exceeded the prior week’s high on the rally, closed at the high of the week, and had its highest weekly close since July. These are all short-term bullish signs.

If the ADI continues higher it faces a resistance zone from around 4,589 (recent peak) to 4,637.24 (2016 high). A daily close above the lower price level needs to occur next for a clear bullish signal. Once that happens there’s a good chance the index will test resistance around the 2016 high and possibly breakout above it.

Last week’s low 4,436.65 is support and the ADI needs to stay above it if it is going to have a chance of continuing higher. A drop below that support level points to a lower retracement down to at least the 50 per cent retracement level at 4,396.30, and possibly the 61.8 per cent Fibonacci retracement at 4,336.05.

Stocks to watch

In Dubai the top three stocks for the year were GFH Financial Group, up 313.44 per cent, Shuaa Capital, up 264.53 per cent, and Takaful House with an increase of 202.60 per cent. Both GFH and Takaful ended the year strong and at or near the high for the year. Each showed renewed signs of strength last week as they broke out of consolidation pattern and began a new leg up. Shuaa remains inside consolidation but remains poised to breakout higher at some point.

When looking at the Abu Dhabi market, the leaders were not quite as strong. Al Wathba National Insurance increased by 113.43 per cent cent, Eshraq Properties was up 89.09 per cent, and Emirates Driving gained 59.41 per cent for the year. Eshraq continues inside consolidation following a sharp jump higher stating in November as it prepares for its next upside thrust. At the same time both Al Wathba and Emirates ended the year at the 2016 high.

Shuaa and Eshraq can be watched for new breakouts as leading stocks have a tendency to continue to lead, while Al Wathba just started a breakout Thursday. The others are extended and can be watch for a retracement lower before looking to jump on board.

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