Dubai: The Dubai Fnancial Market General Index (DFMGI) was close to flat last week, up only 4.82 or 0.14 per cent to end at 3,330.44, the first positive week after three straight down weeks. There were 27 advancing issues and 15 declining, while volume rose just slightly above the prior week.

By itself last week’s performance is not so encouraging, and when combined with the larger developing chart pattern downside risk has been maintained rather than diminished. Two week ago the long-term rising trend line was broken to the downside and the week closed below the line. Last week that line was tested as resistance on a mild short-term bounce and resistance held, leading to a second week in a row that the index has closed below the line on a weekly basis. Further, weakness of the past two weeks breached support at the most recent swing low of 3,325.98 and the DFMGI closed below it on two days.

In addition to the above points what happens next takes on a greater significance because the drop below the line is a first signal for a breakdown of a large symmetrical triangle consolidation pattern. So far the index has stalled around the trend line and therefore support might still hold, or a further decline comes after a little more short-term consolidation.

A rally above and subsequent daily close above last week’s high of 3,357.88 diminishes the bearish implications of the above analysis, at least for now. Other higher price levels to watch for some resistance are then around the two-week high of 3,411.37, followed by the three-week high at 3,471.89. The key price level though is the most recent swing high at 3,542.90. Until the DFMGI can get above there, downside risk will remain.

On the downside, a drop below last week’s low of 3,307.79 gives the next bearish signal, with confirmation of weakness on a move below the two-week low (also eight-month low) of 3,325.62. What could still save the bulls is the potentially significant support zone not too much lower around 3,198 to 3,195. That’s where support was seen during two separate swing lows in 2016. If price is again rejected around that support zone the large triangle pattern may end up evolving into a rectangle type consolidation pattern.

The Abu Dhabi Securities Exchange General Index (ADI) weakened by 22.05 or 0.48 per cent last week to close at 4,577.42. Market breadth leant slightly on the bearish side with 18 advancing issues and 14 declining, while volume dipped a little below the prior week’s level.

For the past three weeks the ADI has had negative performance as it negotiates the transition to a pullback following a 9.6 per cent advance off the December 4,244.50 low. Last week’s close is the lowest weekly close in five weeks and it ended at the bottom of the week’s range. This seems to indicate that another fall, following the intra-week down spike two weeks ago, could be in the works.

A drop below last week’s low of 4,577.09 gives the next bearish signal with the ADI then targeting the price area around support of the downtrend line coming off the January 2017 peak. The price range from around the swing high of 4,531.65 from October to the two-week low of 4,491.06 can be used as a proxy for the line. Once that price zone is tested as support and it holds, if it is to do so, the ADI should be ready to resume its upward trajectory that began off the December swing low.

On the upside, a move above the two-week highs from 4,615.06 to 4,616.64 will be a sign of short-term strength that could lead to a test of resistance at the most recent swing high of 4,651.11.

Stocks to watch

When a stock shows signs of strength in the face of wider market weakness, it is a positive sign for the potential of that stock. Such was the case last week with Aramex PJSC. Aramex was the second best performer in the Dubai market, up 13.7 per cent to close at 4.65, also the high for the week. What makes it interesting is its technical characteristics.

Last week Aramex broke out of a double bottom trend reversal pattern that formed just around support of the 50 per cent retracement area, of the long-term uptrend from the January 2016 low, as it rallied above 4.55. That follows a 26.2 per cent correction off the July 2017 peak of 5.50 that completed at the 4.06 low from two weeks ago. The fact that obvious strength kicked in right around the 50 per cent retracement price area (4.03) is a positive in that frequently for strong stocks this is a maximum retracement in an uptrend and a common area where reversals can occur.

Aramex has been in a steady upward progression since at least 2010, and last week’s price action points to a likely continuation of that long-term trend. The next price areas to watch for short-term resistance include 5.12, a minor swing high from October, and then the record high of 5.50 from July of last year. A daily close above 5.50 will see the stock again heading into unknown price territory, a bullish sign.

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