UAE markets end strong with short-term bullish behaviour

ast week the Dubai Financial Market General Index (DFMGI) ended up 31.32 or 0.90 per cent to close at 3,513.57. Volume dipped to a three-week low, while there were 22 advancing issues and 13 declining.

As discussed in recent weeks the DFMGI has been forming a potential head and shoulders topping pattern for the past six weeks or so. Last week an initial minor bear trigger was given as the index dipped below prior support of 3,441.90, hitting the week’s low at 3,438.57. However, there was no downside follow-through and the second and lower support level of the head and shoulders pattern at 3,430.15 was not breached. On the contrary the price zone between the two prior support levels again acted as support leading to a 1.96 per cent spike higher on Thursday to a five-day high. This is short-term bullish behaviour not bearish.

Regardless, for now the bearish topping pattern remains in effect unless there is a rally above and subsequent daily close above the most recent swing high of 3,556.52. At that point the current head and shoulders price structure would be invalidated and the pattern would be evolving into a different consolidation pattern. Further, a daily close above 3,561.91 (right shoulder high) increases the chance for an eventual upside resolution to the current consolidation phase. An upside breakout and new high for 2016 would occur on a move above 3,623.70.

Until then a breakdown of the topping pattern remains a risk. This would occur on a decisive drop below 3,430.15, the bottom of the pattern. The DFMGI would then be targeting the minimum downside price objective of 3,255.71 when measuring the head and shoulders pattern. That objective is just above a prior support zone of approximately 3,248 to 3,197 (corrective low from May), and therefore can be watched together with the pattern objective.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) improved by 15.91 or 0.35 per cent to end at 4,515.17. General Index 1-week change 1-week % change Advanced Declined Market breadth was relatively even but leaned on the bearish side with 13 advancing issues and 16 declining. Volume dropped to a three-week low.

The ADI fell to an eleven-week low of 4,442.79 last week where it found support at the 55-week exponential moving average (ema) and bounced strong to close at the high of the week and near the three-week high of 4,524.41. That’s the price level to watch for a bullish breakout of a descending wedge trend continuation pattern that has been forming for the past couple of months. Given the bullish reaction on a test of the 55-week ema last week the pattern could be getting close to breaking out on a move above 4,524.41. If it does then confirmation of strength would be indicated on a daily close above the most recent swing high of 4,621.50 followed by a move above the 2016 high at 4,637.24.

If a breakout occurs the related bullish sentiment should spread to the Dubai market thereby increasing the odds for a failure of the bearish head and shoulders trend reversal pattern discussed above. A drop below last week’s low would be a sign that this is happening, but because of the wedge price structure downward momentum should remain subdued.

Stocks to watch

National Bank of Abu Dhabi (NBAD) was up 0.06 or 0.11 per cent last week to end at 9.31. What makes it worth watching is that a bullish descending wedge has formed in its chart over the past six weeks, similar to what we see in the ADI. Support or the bottom of the pattern is at 9.10, which is in the area of the 200-day ema (now at 9.15). The 200-day ema has been tested as support twice during dips while the wedge has progressed and has held. In June NBAD spiked well above its 200-day ema for the first time since October 2014 and held above it.

In addition to the bullish descending wedge pattern those two dips create a potential double bottom trend reversal pattern. A breakout occurs on a move above 9.40. That also happens to be the breakout price for the wedge formation. Therefore, a move above 9.40 triggers both a breakout of the wedge and the double bottom pattern.

If a breakout occurs the first target would be around 9.65, followed by the 2016 high of 10.35. A rise above the 2016 high triggers a bullish trend continuation of the uptrend that began off the January 6.86 low. This has a good chance of occurring eventually given the stocks behaviour relative to the long-term 200-day ema trend indicator. In that case we can use Fibonacci ratio analysis to help determine subsequent targets. The first would be the 38.2 per cent retracement of the longterm downtrend at 10.87, followed by the 50 per cent retracement of the same trend at 12.06. Using analysis for a shorter time frame arrives at a 10.69 initial target, which is the 127 per cent extenton of the current short-term decline.

Bruce Powers, CMT, is chief technical analyst at www.MarketsToday.net. He is based in Dubai. Sensex (IN)