Last week the Dubai Financial Market General Index (DFMGI) was flat, up only 0.72 or 0.02 per cent to end at 3,460.93. Market breadth was about even, with 16 advancing issues and 18 declining, while volume fell slightly to a three-week low.

At the start of the week the DFMGI continued to weaken as it fell below the most recent swing low of 3,397.92 from three weeks ago, and triggered a bear trend continuation signal, before reaching a low of 3,383.59 (week’s low). That low was 8.2 per cent below the most recent swing high of 3,684.19 hit five weeks ago. However, we did not a get a daily close below that swing low and by the end of the week the market recovered its losses to close flat for the week and in the top quarter of the week’s range (bullish doji candlestock pattern). This is intra-week short-term bullish behaviour that has a chance to carry over into this week.

Further, the 14-day Relative Strength Index (RSI) momentum oscillator is giving a bullish divergence signal. The RSI measures changes in price momentum, essentially the rate of speed of price. A bullish divergence is supportive of the idea that a bottom may have been reached for the current retracement. Further confirmation is now needed.

A daily close below last week’s high of 3,475.74 gives the next sign of strength, followed by a daily close above the two-week high of 3,504.99. The DFMGI then heads up into the bottom of a 16-week consolidation range. The bottom price zone of that range is from approximately 3,538 to 3,603, while the three-week high of weekly resistance is at 3,622.24. The top of the resistance range is at the five-week high of 3,684.19.

For all of this year the DFMGI has been expanding a consolidation phase that started around the second quarter of 2016. Given recent price action the pattern has evolved into a symmetrical triangle consolidation pattern, where the price action of the past year can be contained between two trend lines that are heading towards each other and will eventually cross at some point in the future. An uptrend line is drawn along the bottom of the pattern and a downtrend line across the top. Therefore, we could see months of additional consolidation within this pattern before it is ready to breakout. It’s not clear yet which direction the breakout may be heading.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell by 40.51 or 0.94 per cent last week to close at 4,287.07. Market breadth was clearly on the bearish side, with nine advancing issues and 16 declining, while volume just barely exceeded the previous week’s level.

A bearish trend continuation signal was triggered as the ADI fell below the previous week’s low of 4,318.37 and closed below it on both a daily and weekly basis. Support for the week was found quickly, on Sunday, the day of the breakdown, at 4,267.64. Regardless, downward pressure remained as that support zone was tested each subsequent day of the week as the index consolidated around that low.

There’s no particular significance to that low relative to prior support or Fibonacci ratio analysis support zones. Consequently, it wouldn’t seem surprising to see a continuation of the downtrend, even if it might be shortlived. There is a more significance support zone starting from around 4,248 and going down to 4,174.71 (support shelf from 2016). This zone is derived from prior weekly support and several Fibonacci price levels. Fibonacci ratio analysis of the ADI is taking a variety of prior price swings to calculate where support might be seen in the future.

Also indicative of a trend that may be getting old is the reading for changes in downward momentum. Not only is the 14-day RSI the most oversold since January 2016 (long-term bottom) but it has also started to rise.

On the upside, watch for a rally above the four-day high of 4,310.19 for a short-term bullish sign. Potential resistance thereafter would be around 4,358, followed by 4,396.

Stocks to watch

The only good thing to say about DXB Entertainments is that it has come all the way back down to its record low price zone around 0.598 to 0.588, retracing almost 100 per cent of the prior uptrend. That support area is from the first two months of trading following DXBs IPO in December 2014. Last week DXB reached a 34-month low of 0.613. It was up 1.88 per cent for the week to end at 0.651.

Following the record low of 0.588 reached in December 2014 DXB rallied as much as 1.18 or 201 per cent over 20 months. A record high of 1.77 was hit in August 2016. That high was followed by a 15-month decline of more than 65 per cent, as of last week’s low. The stock is at the bottom as far as one-year performance in the Dubai market, with a loss of 57.7 per cent.

The risk-versus-reward situation now is looking interesting as the stock be finally ready to find a bottom. A drop below 0.588 points to further weakness, while a rally above the two-week high of 0.667 provides an indication of short-term strength.

Bruce Powers, CMT, is a technical analyst and global market strategist.