Last week completes the second quarter of 2017 and marks the halfway point for the year. There were only two trading days last week given the Eid holiday and therefore volumes were low. Although not much changed in regards to the overall positioning of the UAE indices, downward pressure remains. The big question now is whether they can hold support and strengthen or will they remain under pressure and drop lower?

Dubai

The Dubai Financial Market General Index (DFMGI) fell by 10.31 or 0.30 per cent last week to end at 3,392.00. There were 11 advancing issues and against 17 declining. Year-to-date the DFMGI is down 3.9 per cent.

The two-week low of 3,373.76 was tested as support last week on both Wednesday and Thursday and so far it has held. Last week’s low was 3,376.76. Those lows are in the vicinity of support represented by the long-term downtrend line. But, since the line is descending as we go forward in time the price represented by the line declines. This means that a drop below the two-week low could again find support around the downtrend line.

Given the current pattern the 3,358 price zone can be used as the next lower support expectation. That’s where resistance was seen on a bounce in early-June and around where the downtrend line support will be for next week.

Further weakness does not change the larger bullish implications of the three-week rally. That rally triggered a breakout of the both the downtrend line and the 55-day exponential moving average (ema) trend indicators. Once 3,465.38 was hit two weeks ago the DFMGI moved into a retracement, where it remains. A deeper retracement would be perfectly normal and healthy.

In the short-term, a daily close above Thursday’s 3,400.02 high will give the first sign of strength. But a bullish trend continuation signal is not generated until there is a daily close above the nine-week high at 3,465.38. At that point we’ll have a new higher swing high. The DFMGI would then be heading towards a minor swing high around 3,515.82, followed by the more significant 3,573.25 price zone. A daily close above that price area will be a clear sign of strength that could then lead to a test of the prior 2017 high at 3,738.69.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell by 6.17 or 0.14 per cent last week to close at 4,425.40. Market breadth was leaning on the bearish side with only 10 advancing issues against 17 declining. So far for 2017 the ADI has dropped 2.7 per cent.

At this point it looks like the ADI will at least test the most recent swing low area of 4,355.26 from mid-March as support. Although the index didn’t go far last week it did drop briefly below the prior week’s low of 4,406.75 before closing above it.

Of greater significance though is the breakdown of the bearish flag pattern that occurred two weeks ago. It was preceded by a breakdown below the long-term uptrend line, making the flag breakdown potentially more significant than it might be on its own. The reason for this is that the breakdown triggered not only the bearish flag but also a continuation of the breakdown below the uptrend line. Since the uptrend line represents a long-term time frame it carries more weight than the flag by itself.

A target can be determined by measuring the flag pattern. In this case the target would be approximately 4,264.40. That’s below the next lower target of 4,355.26 and therefore increases the odds that it may eventually be exceeded to the downside.

Keep in mind that pattern targets are not always reached and price doesn’t move in a straight line, either down or up. Trends include counter-trend moves in the opposite direction of the trend.

A bounce from last week’s close will have the ADI heading up into resistance of the flag consolidation and trend line. It will take at least a daily close above the 4,530.67 weekly high to start to improve the near-term outlook.

Stocks to watch

Aldar Properties was up 0.01 or 0.44 per cent last week to end at 2.30. The stock is being put on the watch list because it broke out of a daily head and shoulders bottom trend reversal pattern on 18-week high volume three weeks ago as it gapped above and closed above the breakout level of 2.31 on a daily basis. A high of 2.44 was subsequently reached before the stock moved into a retracement.

For the past several days support has been tested around the converged 21-day ema and 55-day ema and it has held. The low of the zone is 2.28 and it completes the filling of the gap up from the breakout exactly. Before the breakout Al Dar had been those moving averages since January.

The items noted above are signs of underlying bullish price behaviour. Watch now for strength that could continue the uptrend that started on the bottom breakout. A move above the three-day 2.33 high is the first sign of strength, and then on a rally above the 2.37 weekly high. However, a bull trend continuation is not confirmed until we see a daily close above the 2.44 three-week high.

Bruce Powers, CMT, is chief technical analyst at www.MarketsToday.net.