UAE markets, Dubai and Abu Dhabi, continue to move in opposite directions and in a pronounced way, as the Dubai market falls to a new weekly closing low for the downtrend and Abu Dhabi breaks out to a new trend high. This relationship is interesting and unusual as the two exchanges generally move in a closer relationship.

Dubai

The Dubai Financial Market General Index (DFMGI) continues to struggle, falling by 25.16 or 0.81 per cent last week to close at 3,083.37. That’s it’s lowest weekly closing price since early-February 2016. There were 16 advancing issues and 21 declining, while volume dipped below the prior week’s level.

A bearish trend continuation signal was generated as the index fell below the prior weekly low of 3,081.27 and subsequently ended at a new weekly closing price for the downtrend. The only thing left to confirm the bearish signal is a weekly close below the prior week’s low. That didn’t quite happen but it was awfully close. As of last week’s low of 3,075.53 the DFMGI had fallen 16.5 per cent below the most recent peak of 3,684.19 from October, and was 17.7 per cent down from the two and a half year high from February 2017.

Last week’s market action improves the chance that the DFMGI will at the least reach the next key support zone. It is identified as a price range from approximately 3,029.09 (61.8 per cent Fibonacci retracement level) and 2,992.53 (spike low support from December 2014). Further down is the next key price zone from around 2,851 (2015 low support) 2,836.30 (78.6 per cent Fibonacci price level). Fibonacci ratio analysis is used help identify potential support areas that may not be apparent by just looking at the chart. If a price zone is also identified by prior price action then it is considered to carry greater significance. Keep in mind that identified price zones are potential areas where markets may stall or reverse, but additional signals are needed for confirmation.

A daily close above last week’s high of 3,137.70 is needed for a bullish signal that may have some legs. If the signal is generated then the DFMGI should next close above the two-week high of 3,148.53 to confirm strength.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) spiked higher by 103.17 or 2.25 per cent to close at 4,688.57. That’s its strongest performance in 13 weeks. There were 19 advancing issues and 12 declining, while volume dropped below the previous week.

The advance triggered a bullish breakout above the prior trend high of 4,658.21 thereby signalling a trend continuation for the uptrend. Strength was confirmed by the weekly close above that price level. Also, the week ended strong, at the high for the week.

Given the above bullish factors, what is most significant is that the ADI ended the week less than one per cent away from the two-and — a-half year high of 4,715.05. This means that the index is showing it wants to at least test if not exceed that high!

A breakout above the multi-year high would provide a long-term bullish signal. Confirmation of strength would then be seen on a daily close above that high and further still with a weekly close above it. Such a move would confirm a bullish trend continuation for the long-term uptrend and a breakout of a two-year consolidation basing pattern. Breakouts can fail, as the breakout in January 2017 did, so be cautious. That breakout lasted a couple weeks before the index reversed and returned to inside the consolidation range.

If a breakout above the January 2017 high does occur and it is sustained, the index would next be targeting the July 2015 swing high of 4,902, followed by a minor swing high from November 2014 around 5,004. We can also watch for a target from a measured move, where the second leg up of the advance off the December 2017 low matches the first. This would occur at 4,885. Note that this target is very close to the first target of 4,902 mentioned above.

Stocks to watch

Market leaders have a tendency to stay in the lead over some period of time while outperforming the wider market. We see this characteristic in two of the top performing stocks last week in the Abu Dhabi market. Abu Dhabi National Energy is the top performer so far in 2018 with an advance of 63.6 per cent, while it comes in third over the past year, up 57.9 per cent. Last seek it was up 0.10 or 12.5 per cent to close at 0.9. Meanwhile, First Abu Dhabi Bank was the fourth strongest stock this year, rising 21 per cent. It comes in tenth over a one-year period and rose by 0.32 or 8.6 per cent to finish at 4.03 last week.

Each stock broke out to new recent highs and triggered bullish trend continuation signals last week in addition to ending at multi-year highs. This type of price action will generally see further upside follow-through over the coming days or weeks. Short-term weakness may not last long as investors continue to recognise these market leaders and bullish sentiment intensifies.

 

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