Last week the Dubai Financial Market General Index (DFMGI) dropped by 46.13 or 1.26 per cent to close at 3,601.20. Market breadth leaned on the bearish side with 30 declining issues versus only six advancing, while volume beat the prior week only slightly.

Earlier in the week the DFMGI fell to a four-week low of 3,560.86 before finding support and bouncing to end the week around the mid point of the week’s range. That low is at support of the rising trend line that starts from the June low, and the most recent swing low support of 3,558 from a month ago. The DFMGI has been progressing higher in an ascending trend channel since hitting the June low. If the price structure of the channel remains intact then the index would progress higher from last week’s close, as last week’s low would then complete the current short-term retracement.

A rally above last week’s high of 3,641.57 gives the next bullish signal, with the index then targeting the recent swing high of 3,681.11 from two weeks ago. There would then be a good chance of exceeding that high as the index looks to test resistance around the 2017 high of 3,738.69. Consequently, a rally above the 2017 high becomes more likely.

On the other hand, last week’s low along with the weekly low of 3,537.35 from five weeks ago creates a support zone of note, as a daily close below it will likely lead to a deeper retracement. The next lower support zone is then around 3,374.

We can look at recent price history to try and determine what the chance of a drop below that support zone might be. Specifically, price history since the January 2016 bottom. Since then the index has peaked and rolled over three times before the current decline. We could now be in the beginning stages of the fourth rollover or retracement as last week’s lows broke below the prior three week lows.

Of the past three declines since January 2016 the minimum time from peak to trough was roughly four weeks, and two retracements were over 10 weeks. The current decline has only been a little more than a week so far. This would indicate that there is a good chance the current retracement falls further. It also means that a breakout above the recent peak would give a strong bullish signal given that it is countering the pattern of price behaviour of the past year-and-a-half.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 58.27 or 1.28 per cent last week to end at 4,492.66, its weakest performance in eight weeks. There were nine advancing issues and 24 declining, while volume increased to a six-week high.

Selling accelerated last week as the ADI dropped out of the four-week consolidation range that had been forming around the top of the most recent uptrend. That uptrend began off the early-July lows and eventually found resistance at the 4,608.92 high from two weeks ago. Support of the range was at 4,503.52. The index dropped below that price level last week and closed below it on a weekly basis, thereby setting the stage for further weakness.

In the bigger picture the ADI continues to consolidate within an eight-month price range with a high of 4,715.05 (2017 high) and a low of 4,355.26. As the index flirted with recent highs over the past month it looked like it might attempt to go higher and try to breakout above the 2017 high. That attempt failed as of last week with the outlook now more of the same, up and down within a range.

The more significant support zone to watch is around the 2017 lows of 4,358.36 to 4,355.26. That zone was tested twice since December and each time price was rejected leading to a move higher. If we approach it again then a similar response can be anticipated. At the same time a decisive decline and daily close below that price range is bearish and could lead to a steeper drop. The next price level to watch for support would then be the 2016 lows of 4,179.13 to 4,174.71.

Stocks to watch

Emirates NBD was the top performer in Dubai last week, rising 2.0 per cent to close at 8.30, the high of the week. On the surface this doesn’t look like much, but when compared to recent price action last week’s positive performance takes on greater meaning. The rally took Emirates NBD to a thirteen-week closing high as it broke out of a relatively tight 12-week price range on thirteen-week high volume. In addition, the rally broke out of the downtrend line defining resistance of the downtrend coming off the 2017 high.

The low of the range or support is at 7.95 and the high is 8.20. That low is the bottom of a 23-week decline begun off the 2017 peak of 9.00 from January. Given the price pattern it looks like the stock is completing a bottoming pattern that could lead to a rising trend.

The next confirmation of strength is given on a daily close above 8.35, followed by a move above 8.50, and then a test of the 2017 high.

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