2018 is off to a strong start with UAE markets spiking off lows during the shortened three-day trading week due to the New Year’s holiday. Oil was supportive of bullish investor sentiment and completed the week strong for the third week in a row. Stronger oil should continue to be supportive of further advances in UAE stocks.

Dubai

The Dubai Financial Market General Index (DFMGI) jumped by 93.50 or 2.77 per cent last week to close at 3,463.57. This was its strongest performance since mid-July of last year. A majority of issues participated in the rally, with 29 advancing and only nine decline, while volume dipped to a four-month low given the short week.

Buyers returned with enthusiasm driving the index to a six-week high of 3,467.59, with a strong weekly close not far off the high. Other signs of bullish confirmation include a breakout above the downtrend line (also signals a breakout of the descending trend channel that has formed over the past seven weeks), and a daily close above the most recent swing high at 3,454.35. Further upside can be expected over the coming weeks. Weakness from here will likely be seen as a new buying opportunity by investors.

During the recent decline, other than a short-term dip, the DFMGI was able to hold above support of the uptrend line which comes up from the November 2016 swing low, which is bullish. Further, that low is a higher swing low than the swing low before it which occurred in June of last year. This shows support coming in at a higher price level and is also bullish in the bigger picture. The December low of 3,325.98 completed a 9.72 per cent correction from the 3,684.94 peak that was reached in October 2017.

The dominant longer term pattern that exists in the chart of the DFMGI is that of a relatively large symmetrical triangle consolidation pattern, with the uptrend noted above providing support for the pattern at an angle. This pattern started to form in the first quarter of last year. It shows volatility diminishing over a number of months as the swing high to low range diminishes. Assuming that the triangle will continue to develop means that the range will further narrow over the coming months. This also means there’s a good chance that the rally that just started will eventually end somewhere near the top trend line resistance zone.

The price of the line will vary depending on when it is reached, but it would be reached somewhere within the top rectangle consolidation zone from July to October last year. That’s from approximately 3,538 to 3,684.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) advanced by 149.99 or 3.41 per cent to end at 4,548.43, providing its best performance since early-April 2017. There were 19 advancing issues and eight declining, while volume dipped to a four-week low.

As we head into 2018 let’s step back a bit and take a look at the larger pattern in the ADI. Since around the second quarter of 2016 the index has been in a range bound consolidation phase. It’s not as clear of a consolidation pattern as seen in the DFMGI, but there was a development last week that provides hope for the future.

There’s a downtrend line coming off the January 2017 high of 4,715 that marks angled resistance across the top of the consolidation pattern. Last week there was a bullish breakout above that line with the ADI closing above it on a weekly basis. That’s a new bullish signal that potentially could be the beginning of an eventual move out of the approximately two-year price range. In addition, last week’s close was above the move recent swing high of 4,531.65 that defines the 12-month downtrend off the January 2017 peaks. That’s two bullish signals for the intermediate-term and possibly the long-term. However, we’ll have to watch what happens in the coming months for additional signals.

The ADI now heads up into a potential resistance zone from around 4,609 to the 2017 high of 4,715.05. Despite all the chopping around that occurred over the past two years the overall pattern during that time is of a developing uptrend. Nevertheless, a bullish continuation of that long-term trend is not indicated until there is at least a daily close above the 2017 high.

Stocks to watch

DXB Entertainments was the top performing stock in Dubai last week, up 8.66 per cent to close at 0.69. It’s worth watching as a bullish breakout of a double bottom trend reversal pattern was triggered on a move above 0.679 and accompanied by 17-week high volume. The breakout was confirmed with Thursday’s daily close above the breakout level, and the stock closed strong, just shy of the week’s/Thursday’s high of 0.693. Weakness can be used as an opportunity to engage at lower prices.

The first target zone of note is around the nine-week high of 0.74 and up to approximately 0.756. How aggressive or relaxed the advance is from here will be telling as to whether this reversal is sustainable and points to a long-term trend reversal, or is just a temporary rally on the way to new lows.

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