Dubai: The Dubai Financial Market General Index (DFMGI) was up 24.60 or 0.74 per cent last week to close at 3,351.73. Most stocks ended higher for the week as there were 27 advancing issues and only eight declining, while volume jumped to an eleven-week high.

Even though the DFMGI fell to a new 2017 low of 3,287.51 last week, we may be close to seeing the index turn the corner. It peaked at 3,738.69 (2017 high) on February 9 and has since been falling. As of last week’s low the index had declined as much as 12.1 per cent, making it the largest correction of the past year-and-a-half. Not by much though as the previous two corrections had declines of 11.8 per cent and 11.3 per cent. This fact increases the odds that last week’s low could possibly turn into a bottom.

Other bullish evidence includes last week’s performance. It was the strongest performance in eight weeks, and it occurred on higher volume. Plus, price behaviour for the week was bullish as the index closed near the high for the week (3,353.96) after initially selling off to new 2017 lows.

For bullish confirmation the DFMGI next needs to close above last week’s high on a daily basis. The index has been unable to get above a prior week’s high during the current week for the past eight weeks. To do so would be a positive change in the pattern.

Following a move above last week’s high, the next key potential resistance zones would be around 3,435, followed by the 3,573 price area. There is then a higher price zone from around 3,604 to 3,659. Of course, the 2017 high is the most significant price level as a breakout signals a continuation of the long-term uptrend (begun from January 2016).

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) was down by 38.03 or 0.84 per cent to end at 4,478.81. Market breadth leant on the bullish side with 23 advancing issues and 10 declining, while volume reached a three-week high.

On Wednesday the ADI took at sharp 1.7 per cent drop through its long-term uptrend line, ending the day at the low of the day and clearly below the line. The uptrend line has represented dynamic support for the uptrend until last week. On Thursday it denoted resistance as the high for the day pushed up close to the lower side of the line. A drop below a long-term trend line is generally considered to be bearish and therefore downward pressure may continue.

The next potential support zone is around 4,399. That’s a little above the more significant price level of 4,179. That lower price level is the low for 2017 from March, and it successfully completed a test of the downtrend line as support. The line starts from the September 2014 highs. In early-December 2016 the ADI rose decisively above the downtrend line and has stayed above it which is a long-term bullish behaviour.

Now that the index has dropped below the uptrend line for the first time the chance for another eventual test of the downtrend line has greatly increased. Given that the line is at a descending angle the price it represents will depend on when the ADI reaches it, if it is to do so. We can say at this time that the price of the line when reached will be below the March low.

The above bearish scenario becomes less likely in the near-term if we see a bounce and daily close above 4,428.67. That would put the ADI back above the uptrend line and change the four-week pattern of lower weekly highs. In other words each new week’s high has been lower than the prior week’s high for the past four weeks.

Stocks to watch

Shuaa Capital has formed a small potentially bullish double bottom trend reversal pattern (or rectangle) on its daily chart over the past several weeks. The pattern has formed on support of the 200-day exponential moving average (EMA) and it follows a nine-week 30.2 per correction off the 2017 high at 2.02. Even if the correction is not yet complete a bounce is likely if Shuaa can rise above the three-week high of 1.54 with conviction. And there is the potential to eventually exceed the 2.02 high. Last week the stock was up 2.76 per cent to close at 1.49.

Dubai Islamic Insurance broke out of a well formed low volatility descending trend channel last week on 16-week high volume. It was the strongest performer in the UAE, up 37.48 per cent to close at 0.972, the high for the week.

Last week’s breakout completes a 46 per cent correction that started from the 2017 high of 1.24 and ended at the 0.67 bottom reached two weeks ago. Given the tight structure of the descending channel, the strong initial breakout on high volume last week, and the significant eight-week 165 per cent advance that occurred prior to the 1.24 high, this stock has the potential to exceed the 1.24 high in the foreseeable future.

In the short-term it is extended (risen too far too fast) but can be watched for pull backs which should present opportunities to enter at lower prices.

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