Dubai: Last week the Dubai Financial Market General Index (DFMGI) improved by 35.73 or 1.09 per cent to close at 3,309.79, its best performance in thirteen weeks. For the first time in eight weeks market breadth was distinctly bullish with 25 advancing issues and 12 declining, while volume popped to a 30-week high.

Earlier in the week the index fell below the prior week’s low (3,273.96) and then closed below it on a daily basis, which by itself is a bearish sign. However, support was seen shortly thereafter at 3,195.49, right in the lower part of a long-term support zone from May. Long-term support countered a short-term bearish trend continuation signal leading to a relatively strong rally be the end of the week. This combined with the positive indications from noted in the above paragraph turns the near-term outlook to positive.

Confirmation of strength will next be given on a daily close above the two-week high at 3,318.85. That will be the first trigger for a reversal of the 12-week downtrend. The next resistance area would then be around the four-week high of 3,368.3, followed by a potentially significant resistance zone from approximately 3,428 to the seven-week high at 3,474. That range is the bottom part (prior support) of the head and shoulders top pattern that was triggered seven-weeks ago and led to the recent sell-off. Resistance of the 55-week exponential moving average (ema), which is now at 3,428, starts the price zone.

It is interesting to note, and bullish, that during the recent decline the DFMGI corrected by 11.8 per cent (peak to low) but remained above it’s long-term downtrend line. In fact, last week’s low was almost an exact touch of support of that trend line. If you recall the index broke out above the line back on July 13. This behaviour is showing prior trend line resistance becoming support, and is bullish behaviour for the eventual continuation of the uptrend that began at the January low. It provides a new indication that the long-term downtrend may be turning into an uptrend. This is not yet confirmed but needs to be watched. It will be confirmed only once there is a daily close above the 2016 peak at 3,623.7.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) didn’t move much last week, rising only 9.62 or 0.22 per cent to end at 4,292.08. Market breadth remained mixed with 15 advancing issues and 18 declining, while volume remained high, at the second highest level since April 2015.

This is fourth week in a row that the index has ended the week within 0.25 per cent of the prior week’s close. It reflects tightening volatility as the ADI continues to evolve a five-week consolidation range in a support zone that includes the 200-week ema (now at 4,225) and the swing low support of 4,174.71 from back in May.

Last week the ADI dropped below the prior week’s low and tested the May support. The low for the week was 4,179.13. Support held and the index turned higher to close just barely positive for the week. At that low the ADI had corrected 9.6 per cent off the July peak in fifteen weeks.

Given the strong bounce off long-term support on high volume it looks like there’s an excellent chance that a bottom has not been reached. Confirmation of this will be given on a daily close above the two-week high of 4,349.91, which will trigger a bullish breakout of the consolidation phase.

Until then the ADI could continue to chop around the bottom and further consolidate before moving higher, if it is to do so. The longer the consolidation phase evolves the great the chance that when price does breakout it does so with momentum. We saw something similar to what’s possible on the bullish breakout of a bottom consolidation pattern that occurred back in mid-April.

Initial upside targets following a bullish breakout would be around 4,443, followed by approximately 4,515.

Stocks to watch

Amlak Finance has been consolidating around a 1.16 low for the past five weeks or so with a range high of 1.26. Last week the stock had its best performance in over three weeks, rising 3.36 per cent to close at 1.23, while volume improved to a 16-week high. This rise in volume is a sign that demand is improving.

The area of 1.16 has been tested as support over three separate weeks and has held. This combined with the improving outlook for the larger market makes Amlak a likely candidate to breakout to the upside. A decisive breakout above 1.26 will provide a trigger.

Dubai investments has formed a double bottom trend reversal pattern over the past six weeks. Last week the second low of 1.90 was created as a partner to the 1.91 low hit five weeks ago. The stock was up 2.99 per cent last week to end at 2.07, a seven-week closing high, while volume spiked to a 12-week high.

A bullish breakout occurs on a decisive rally above the six-week high at 2.07. Dubai Investments will soon thereafter exceed the long-term downtrend line that has been in place for over two and-a-half year and will be heading towards the most recent spike high of 2.23.

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