Dubai breaks out in strong performance while Abu Dhabi stalls

he Dubai Financial Market General Index (DFMGI) gained 100.68 or 2.99 per cent last week to close at 3,471.90, its strongest performance in five weeks. There were 32 advancing issues and 10 declining, while volume improved to a 12-week high, yet remained near the low end of the two-year range.

Following nine weeks of consolidation, the DFMGI finally broke out to the upside as it rallied above 3,378.11. Last week’s advance put the index above its long-term downtrend line, decisively above the 200-day exponential moving average (ema), now at 3,379.78, and back above the 55-week ema (3,438). Each is a sign that underlying strength in the uptrend that started from the December low is returning. However, the DFMGI needs to move above and close above on a daily basis the 2016 high of 3,604.70 before there is confirmation that the uptrend is continuing. The signals noted above improve the chance for this to eventually occur.

Areas to watch for support on any pullback in the short-term include the 200-day ema along with last week’s low of 3,357.35. A daily close below last week’s low is a sign of weakening, with the DFMGI then heading into consolidation support of the recent nine-week range. That range goes all the way down to 3,197.32.

The DFMGI has been in an overall downtrend for a little over two years. It peaked at 5,406.52 in early-May of 2014. This means the downtrend is still likely to continue unless there is a daily close above the 2016 high. That would be the first sign that the price structure or pattern of the downtrend has been violated, indicating that it may be coming to an end. This doesn’t mean that the index goes straight up from there and doesn’t go down again. But, the chance of a decline below the 2016 low of 2,590.72 in the foreseeable future at that point greatly diminishes.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) was flat, up only 0.89 or 0.02 per cent, to end at General Index 1-week change 1-week % change Advanced Declined 4,576.73. Market breadth was mixed with 17 advancing issues and 15 declining, while volume hit a five-week high.

On Sunday, the ADI slightly exceeded the prior high of 4,587.87 from three weeks ago to hit 4,595.33 before selling pressure stalled a further advance. Upward pressure remains though as volatility for the week was low, the prior week’s low was not exceeded to the downside, and the week ended near the high of the range.

A rally above and subsequent daily close above last week’s high gives the next bullish signal, with the index then heading towards the 2016 high at 4,637.24.

If that high is exceeded to the upside, a bullish trend continuation signal will be given, and significantly, the price structure of the two-year downtrend will be violated, pointing to a probable reversal of the long-term downtrend. The ADI would then be heading towards the July 2015 peak of 4,902.09. Support is around the lows of the past two weeks, from 4,517.45 to 4,501.

Stocks to watch

Drake and Scull has been consolidating for the past couple of months with volatility declining over that time. Low volatility leads to high volatility, i.e. potential breakout in the works. One sign of unusually low volatility, in addition to visual verification, is that the short, medium and long-term moving averages have come close together. The consolidation phase has occurred above the long-term downtrend line (bullish), and around support of the 200-day ema (bullish). Up to early-April, Drake and Scull had been below its 200-day ema since July 2014.

An upside breakout is first indicated on a move above 0.572, and confirmed above 0.577. A daily close above the higher price level should then be seen if the stock is to continue higher. In addition, a move above 0.58 would put the stock back above the 55-week ema, another bullish confirmation. Sensex (IN) 5052 4280.04 3606.73

Upon a breakout, the first target would be 0.64, followed by the October 2015 peak around 0.665. Further up starts a resistance zone from 0.71. A rally above the first price target will trigger a continuation of the uptrend begun off the January low of 0.291, thereby increases the odds for a decent rally. Since the 55-week ema will be broken upon a breakout, the next target based on moving averages would around 0.84, which is the 200-week ema.

The chart of Drake and Scull is showing classic price behaviour of a stock moving from a long-term downtrend into an uptrend. There’s been only one leg up before consolidation so far, improving the odds for at least a second leg higher.

Last week the stock closed up 3.28 per cent to 0.567, while volume jumped to a seven-week high.

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