Dubai: Last week the Dubai Financial Market General Index (DFMGI) dropped by 50.25 or 1.38 per cent to end at 3,583.66. That’s the lowest weekly close in nine-weeks. Market breadth was even, with 17 advancing and 17 declining issues, while volume dried up. Volume fell to the lowest level of the past 10 weeks and the second lowest of the past seventeen weeks.

In the short-term the DFMGI may have further to fall but it will be met by a wide range of potential support as it will be dipping into an eight-month consolidation pattern that takes the form of a rectangle.

The first price area to watch for signs of support is around 3,555.70 to 3,551, consisting of the 21-week exponential moving average (ema) and the two-week low, respectively. That two-week low was at support of the 21-week ema at the time. In short, the 21-ema was support once so far as the index bounced off it once hit. It therefore has a good chance of being support again.

If the DFMGI falls below the two-week low then the next potential support zone of significance is not much lower. From around 3,502 to 3,490.66 there are several indicators pointing to that price zone as support, including the 200-day ema, the swing low from December, and an uptrend line that starts from the January 2016 low.

As discussed in prior weeks, the DFMGI has been progressing in an uptrend since the January 2016 low. All the signs are there pointing to a continuation of that trend. This will be the case unless something changes in the price structure as the trend continues to evolve. At this point the next key change would occur if the index closes below the uptrend line on a daily basis. Since the line is at an angle the price represented by it when reached will change over time. For now, the swing low from December can be used as a proxy for support of the line.

On the upside watch for a breakout above the two-week high of 3,656.76 to provide the next bullish signal that might have a chance of heading higher. From there the DFMGI will have to contend with a potential resistance zone up to the 2017 high of 3,738.69. A decisive daily close above that price level is needed for the next longer term bullish signal.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) dropped by 57 or 1.22 per cent last week to close at 4,596.39. There were 22 advancing issues and 20 declining, while volume slipped to an eight-week low.

Last week resistance was seen on Sunday at 4,668.77. That’s right around resistance of the prior week at 4,666.68. For a sign that the ADI is moving higher we need to see a daily close above last week’s high. Subsequently, the index needs to break above the 2017 high of 4,115.05 to trigger a bullish trend continuation.

A daily close above the 2017 high would confirm a continuation of both the intermediate and long-term uptrends. However, given that resistance of the past two weeks was tested over two weeks and price was rejected there’s a good chance that in the short-term downward pressure will remain for now.

A drop below last week’s low of 4,551.70 gives the next sign of weakening, with potential support then down around the 200-day ema, which is now at 4,473.33. This price level can be used together with the most recent swing low support zone from 4,441 to 4,436.65. That is the low end of an eleven-week price range. It’s possible we may see the ADI continue to fluctuate within this 4,115.05 to 4,436.65 price range.

Stocks to watch

Once Air Arabia hit a peak of 1.44 five weeks ago the stock began a quick 17.4 per cent sell-off. The November swing low of 1.26 was undercut on the drop thereby putting the choppy uptrend that began off the January 2016 lows at risk. Support was subsequently found at 1.19 three weeks ago and tested again the following week. That created a double bottom trend reversal pattern with a breakout triggered on a move above 1.25.

Last Thursday a bullish breakout of the double bottom pattern was triggered on 15-day high volume as Air Arabia rallied to 1.27 before ending the week at 1.26. The close is above the breakout trigger and at a three-week weekly closing high. For the week the stock was up 0.05 or 4.13 per cent.

Since the breakout just confirmed further upside is likely over the coming one to a few weeks. Weakness can be used as an opportunity to consider Air Arabia at slightly lower price in anticipation of a continuation of the newly triggered short-term uptrend. On the way down Air Arabia gapped down and that gap has not been filed. As the stock is now rallying towards the gap, the gap is likely to be filled. It will be filed if 1.38 is reached. Therefore, 1.38 can be used as one potential target. A lower target, and therefore more likely to be reached, is the end of the gap which is at 1.33.

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