Dubai: Last week the Dubai Financial Market General Index (DFMGI) crept higher by only 9.69 or 0.29 per cent to close at 3,365.09. Market breadth was about even, with 20 advancing issues and 18 declining, while volume fell slightly below the prior week’s level.

A bearish trend continuation signal was triggered as the prior week’s low was exceeded to the downside. However, the week ended above the previous week’s low for the first time in three weeks. This behaviour is considered to be short-term bullish, awaiting confirmation. Next, a move above last week’s high of 3,381.04 would need to occur to provide a bullish signal.

As noted last week the DFMGI has been forming a declining trend channel for the past five weeks or so. Last week the downtrend line at the underside of the channel was hit again at last week’s 3,343.18 low, and it held as support. This further confirms the formation of the channel. The low was also very close to support of a long-term uptrend line.

Regardless, the channel will either continue to form as the market remains range bound, or evolve into a different pattern. What it shows is that although the index has continued to fall overall during the past six weeks, downward momentum has also weakened. This has some characteristics of a falling bullish wedge pattern and therefore an eventual upside breakout can occur in the coming weeks, while a drop to a new low may be muted and again quickly find support.

Further supporting the bull case is the 14-day Relative Strength Index momentum oscillator (RSI). Essentially, this indicator looks at the change in the speed that price is rising or falling. Currently, it shows what is referred to as a bullish divergence, where price has kept falling while the RSI has been rising. This is considered bullish. Nevertheless, a sign of strength would need to be seen for confirmation that the underlying early-term bullish behaviour is improving.

If last week’s high is exceeded then the DFMGI heads up towards the top channel trend line, roughly around 3,420. A breakout above the most recent swing high of 3,454.35 will be needed to confirm a breakout of the descending channel, with higher prices likely from there.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) moved higher by only 9.93 or 0.23 per cent end at 4,349.15. There were 11 advancing issues and 18 declining, while volume dipped lower from the previous week.

Six week ago the ADI broke down from a large multi-month bearish descending triangle consolidation pattern that had developed for much of this year. The breakdown occurred on a move below support of the pattern at 4,355.26. Following the breakdown the index found support at 4,244.50 three weeks ago. Since then it has been attempting a rally back up into the body of the pattern.

On each of the past two weeks it has been rejected before getting too high. Positive performance was seen in each of the past two week with moves above the prior 4,355.26 support level. But by the end of the week the ADI closed below that level. In the weekly candlestick pattern this creates distinct shadows or wicks reflecting underlying downward pressure that is encountered during rallies. This means that the ADI remains vulnerable to further declines. At the same time the downward pressure could dissipate on future attempts to move higher.

A daily close above last week’s high of 4,397.38 gives the next short-term bullish signal, with the index then heading towards the top downtrend line defining resistance of the large descending triangle mentioned above. The actual price for potential resistance will depend on when the line is reached. Given that the strength seen over the past two weeks follows a steady seven-week decline it can be expected that the ADI will make additional attempts to go higher.

Stocks to watch

Emaar Properties found support at 6.92 last week, possibly an early sign that the drop that began off the 8.95 peak reached mid-September may be close to ending. Although further signs of strength are needed, last week’s low when combined with the low from two weeks ago (6.95) shows the support zone holding. Those two lows are in a support area first determined at the end of two previous declines. At last week’s low Emaar had fallen 22.7 per cent from the September peak. For the week Emaar was up 2.3 per cent to close at 7.11.

The next sign of strength occurs on a move above last week’s high of 7.19, followed by a move above the two week high of 7.81. That’s a little ways up and on the way Emaar first faces resistance starting around 7.42 to 7.54. The two-week high is in a three-week consolidation zone with a high of 7.93. A daily close above that high clears the way for Emaar to continue to strengthen and possibly exceed the September peak eventually.

Alternatively, a daily close below last week’s low drops the stock below a significant support shelf. That would also alter the basic price structure of the uptrend that began off the January 2016 low, which would be bearish.

 

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