Dubai: Oil finished its third consecutive week of gains last week and is rapidly approaching 2016 highs, as is the Dubai Financial Market General Index (DFMGI). The DFMGI was up 48.02 or 1.36 per cent to end at 3,572.44 and is once again aligned with the bullish sentiment in oil. There were 15 advancing issues and 20 declining, while volume jumped to a four-week high.

The index broke out to new 2016 highs last, reaching a new high of 3,623.70 for 2016. However, there has not yet been a daily close above the prior 2016 high of 3,604.70. This is needed to provide some confidence that the strength indicated by the breakout, which signals a bull trend continuation, can sustain itself.

Next, watch for a daily close above last week’s high of 3,623.70 for a bullish trend continuation signal. The DFMGI would then be targeting a resistance zone from around 3,740 to 3,762. Further up is a price zone from approximately 3,913 to 3,985, which was previously support of a four-month consolidation range from the summer of 2015. The top of that consolidation pattern is at 4,234, which marks the next more significant barrier for a continuation of the uptrend.

Given the long-term price structure in the DFMGI, the odds look good that at least the 3,913 price area would be reached following to a daily close above last week’s high. At the same time, a new 2016 for oil should help fuel bullish sentiment. Another bullish sign is seen in the moving averages. Over the past five weeks or so the shorter-term 21 and 55-day exponential moving averages (EMA) have crossed up above the 200-day EMA, further confirming the underlying upward momentum building in the DFMGI.

The most recent swing low of 3,430.15 from three weeks ago is the key support area to watch. As long a that low is not violated during pullbacks, the uptrend structure for the short and intermediate-term remains in place.

Abu Dhabi

Once again, for the fifth time in six weeks, the Abu Dhabi Securities Exchange General Index (ADI) made little progress. It was down 8.56 or 0.19 per cent last week to close at 4,518.45. Market breadth was split, with 14 advancing issues and 19 declining, while volume jumped to a four-week high.

Since falling from a 4,621.50 peak a month ago the ADI has been holding a line of support from 4,504 to 4,486. This is equivalent to support of the 55-day EMA, and highlights the short-term significance of this moving average, which is now at 4,502. 28.

A drop below the 55-da EMA and subsequent daily close below the three-week low of 4,486 will likely lead to a continuation of the short-term bearish trend. The 200-day EMA, which is now at 4,424, would then be the next key target area. It matches the target from a measured move, which completes at 4,421.6. That’s where the second leg down off the four-week high matches the drop of the first leg down.

On the upside, the ADI faces downward pressure from the most recent peak of 4,621.50 to the 2016 high at 4,637.24. But first the index needs to get above last week’s high of 4,583.36. A daily close above the 2016 high would have the ADI next targeting the 4,902 price area.

Stocks to watch

Damac Properties was up 3.35 per cent last week to end at 2.47. Volume spiked to a 17-week high as the stock broke out of a two-and-a-half month bottom formation, technically an inverse head and shoulders pattern, but with a high right shoulder. Generally, a high right shoulder is considered more bullish than a lower right shoulder.

The breakout occurred on a rally above 2.43, and was confirmed when it exceeded prior resistance at 2.44. In addition, a breakout above the 21-week EMA (2.43) also occurred, and provides additional significance to the pattern breakout. Based on the bottom pattern the minimum target following the breakout is around 2.65. Higher price areas to watch for an eventual target include 2.75, and then 2.88. Important support is at last week’s low of 2.36.

Methaq Takaful Insurance has a tight bullish triangle pattern setting up on its chart, and it has formed right up against resistance of the long-term downtrend line and on support of the 55-day EMA. This pattern may not yet be complete and can always evolve into a larger pattern, but for now we can assume a bullish breakout has a chance to run higher.

The first signal for a breakout occurs on a move above 0.94, with greater confidence provided once Methaq gets above 0.96 and then 0.99. Targets include 1.11, followed by 1.35. Each of those prices ended a relatively sharp rally in 2015.

Support is at the two-week low of 0.88. if Methaq falls below that price level then the triangle pattern is either failing and breaking lower or evolving into a different pattern.

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