Dubai

The Dubai Financial Market General Index (DFMGI) was down 24.69 or 0.68 per cent last week to close at 3,632.54. There were 10 advancing issues against 24 declining, while volume dipped to a three-week low given the four-day trading week as the UAE markets were closed Thursday for the holiday.

It’s now starting to look like the five-week advance is running out of steam. It’s not confirmed yet but could be shortly. At the most recent swing high of 3,667.42 the DFMGI had gained as much as 3.0 per cent off the most recent swing low of 3,560.04 reached six weeks ago. Note that the high was lower than the prior swing high that topped out at 3,681.11 seven weeks ago thereby creating a lower swing high.

This current advance, which has taken the form of a rising bearish wedge, occurred with relatively low volatility compared to the much larger and more rapid advance that took place in the previous rally that ended seven weeks ago. A breakdown from this channel would be at least short-term bearish if not more so.

The uptrend line of the ascending channel was breached to the downside last week and there was a daily close below the line. This does not give a decisive short-term bearish signal by itself but it is reflecting greater weakness coming into the market.

At this point a decline below the 3,625.17 to 3,617.64 weekly support zone will give the next bearish signal as that will put the DFMGI clearly below the uptrend line and at a three-week low, plus a breakdown of the rising bearish wedge pattern will occur. Depending on what happens after that, this could be the early sign for a continuation of the bearish decline that began off the high seven weeks ago.

We won’t know if that’s the case until we first see a drop below the four-week low of 3,589.45, followed by a decline below the most recent swing low of 3,560.04. A daily close below the swing low will confirm a continuation of the bearish trend. Keep in mind though that the decline is so far just a pullback from the prior nine-week rally that came off the June bottom.

Alternatively, a move above the recent 3,667.42 peak is needed for a bullish signal. At that point the DFMGI is hitting a potential resistance zone from the August peak, and it will have a shot at breaking through it.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) weakened by 26.10 or 0.58 per cent to end at 4,455.09. Market breadth confirmed the bearishness with 10 advancing issues and 17 declining, while volume dropped to a three-week low.

While the DFMGI has formed a rising wedge the chart pattern in the ADI as of last week has formed a falling wedge. A falling wedge (like a declining triangle) is considered to be bullish, but only once it triggers. The current wedge in the ADI looks like it could continue to develop for a while longer before breaking out to the upside, if it is to eventually do so. This means lower prices for the index. However, since the wedge is a form of consolidation that is descending, it may continue to fall slowly.

A continuation of the bearish trend is shown on a drop below the most recent swing low and last week’s low of 4,419.98. The key support zone of significance is around the twice tested 2017 lows of 4,358.36 to 4,355.26. Nonetheless, we can examine the pattern of the falling wedge to estimate a support zone assuming the pattern continues to progress in its current parameters. In this case it looks like support could be seen from roughly 4,393 to 4,385.

In its current configuration an upside breakout would occur on a move above 4,484. The index would then be heading towards 4,509, followed by the 4,563 price area.

Stocks to watch

It’s starting to look like Drake & Scull could be close to making a more aggressive move than what’s been seen recently. The stock has been consolidating into a large symmetrical triangle pattern over the past several months. In this type of triangle pattern overall price volatility or the high-to-low range of the pattern declines over time as price moves closer to the apex of the triangle.

A symmetrical triangle pattern is defined by two trend lines heading towards each other so that they will cross at some point in the future. Where they cross is the apex, and it is pointing horizontally. The top line or resistance of the pattern is declining and the bottom line or support is rising. A proper breakout should occur before price gets more the three quarters towards the apex.

Drake & Scull is at or close to the three quarters point now which means a breakout could come soon, it is to occur. Since the pattern is symmetrical a breakout can occur in either direction. The main point here is that a breakout could be followed by a sustained price move in the direction of the breakout. An upside breakout would be indicated on a decisive move above 0.396, while a drop below 0.357 is bearish.

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