Dubai: Last week the Dubai Financial Market General Index (DFMGI) gained 59.92 or 1.81 per cent to end at 3,367.64. Market breadth leant on the bullish side with 21 advancing issues and 15 declining, while volume dipped to a 29-week low.

The DFMGI remains within a relatively tight seven-week consolidation range. Even though the index breached the prior six-week high of 3,377.36 on Thursday, it only reached 3,378.11 before falling back to end below the prior high. Weekly volatility has been tightening as the pattern has formed increasing the odds that when a breakout occurs it could be sharp as high volatility usually follows periods of low volatility. Last week’s significant rise in volatility in global markets could be the impetus for such a move.

A drop below last week’s low of 3,296.50 signals a breakdown. The next target (minor) would first be around 3,248, followed by the May swing low of 3,197.32. That May low could easily be breached, triggering a continuation of the descent that began off the 2016 high of 3,604.70 in April.

So far, the DFMGI has had one leg down off the 2016 high before moving into a counter-trend rally over the recent four weeks. If we assume a second leg down will match the decline of the first leg (measured move) we arrive at two targets, one based on price and the other based on a percentage decline. A second leg starts from last week’s high and will trigger on a drop below last week’s low. In the first case the target would be 2,970.70, and in the second, 2,996.3.

The 61.8 per cent Fibonacci retracement price target is close by at 2,978.06, thereby increasing the potential that the 2,996 to 2,970 price zone will eventually be reached. Fibonacci analysis uses the prior trend to calculate where support might be seen during the retracement of that uptrend.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) jumped by 177.55 or 4.11 per cent last week to end at 4,499.73, its strongest performance in 10 weeks. There were 21 advancing issues and 15 declining, with volume increasing over the prior week. Overall though, volume remained near one-year lows.

Of course, the big news that propelled the index higher was the announcement that National Bank of Abu Dhabi is in merger talks with First Gulf Bank. The combined entities would have a market value that exceeds Deutsche Bank AG, Standard Chartered Plc, or Credit Suisse Group AG. Positive sentiment seen last week will not likely be overshadowed by the bearish global market reaction the UK’s decision to leave the EU.

The week’s high was at 4,587.87, right where resistance was seen at the peak in early-March (4,587.70), as well as the peak in October of last year. A daily close above last week’s high is now needed for signs that the ADI can continue higher, first testing and then possibly exceeding the 2016 high of 4,637.24. For now though downward pressure remains with a resistance zone from last week’s high up to the 2016 high.

A drop below the two-week low of 4,313 points to a failure of the four-week uptrend, with the next price zone of significance being the 4,174.71 swing low hit in May. If exceeded to the downside a bearish trend continuation signal will be generated.

Targets would then be the 61.8 per cent Fibonacci retracement at 4,077.53, while a measured move completes a little higher at 4,125.3.

Stocks to Watch

The Abu Dhabi banking sector index was up 7.23 per cent last week, but has been a lagging sector this year. Year-to-date the sector is down 2.43 per cent, making it the third worst performing sector in Abu Dhabi following Industrial and Investment & Financial Services.

Union National Bank (UNB) has been struggling to find a sustainable bottom all year. Last week’s price action provides some hope that it may eventually make it. The stock was up 14.21 per cent last week to close at 4.10, but is down 12.39 per cent year-to-date. Technically, it is now extended, reaching the most overbought level since late-April 2015 according to the 14-day Relative Strength Index momentum oscillator.

Last week UNB broke above prior resistance at 3.85 before finding resistance at 4.15, the high for the week. The next two price levels to watch for resistance are the 200-day ema at 4.26, and the March spike high at 4.42. A daily close above 4.42 is needed to provide the next clear bullish confirmation that the bottom price formation developing over the past five months is complete. Watch for retracements down to last week’s low support at 3.63 for lower entry prices.

Abu Dhabi Commercial Bank ended the week at 6.30, higher by 8.43 per cent. It broke out of a triple bottom trend reversal pattern as it rallied about 6.24 and closed above it. That’s an eight-week closing high. In addition, the stock jumped back above its 55-day ema for the first time since late-April. The next target is at the eight week high of 6.47, followed by 6.60. Support is at the week’s low of 5.92, which shouldn’t be busted to the downside if the ABCB is to have a chance of continuing higher in the near-term.

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