Bullish breakout signalled in UAE markets as volumes surge

he Dubai Financial Market General Index (DFMGI) gained 92.73 or 2.56 per cent last week to close at 3,720.59. This was the highest weekly closing price since earlyAugust 2015 and it occurred on a spike in volume. Volume reached the highest level in 43 weeks and the third highest in over a year. There were 30 advancing issues and 10 declining.

Last week the DFMGI made a decisive breakout of an eight-month long rectangle consolidation pattern. The rally signalled a continuation of the bullish trend that began off the January 2016 low of 2,590.72. It should be followed by further upside as the prior long-term downtrend off the 2014 highs further reverses into an uptrend.

The progression of the uptrend has occurred in classic fashion. First, there was a 39.1 per cent advance in approximately 14 weeks — the first leg up. Then began a long range bound basing phase when volume dried up and it wasn’t clear if the trend would eventually continue higher.

The second leg up began off the 3,195.49 low in November. As of last week’s high of 3,728.80 the DFMGI had advanced 16.7 per cent off that low. From the January 2016 low it was up 43.9 per cent.

Last week’s high stopped just short of the next potential resistance area around 3,739.85. That was previously a minor peak in October 2015. Also around the same price area is resistance of a downtrend line that starts at the 2014 high. It is less significant than the long-term downtrend line that was exceeded in July as it is drawn connecting two swings highs that are relatively close together in time. Given last week’s performance and the positive trend progression that has been made so far, the 3,739.85 resistance zone is expected to be exceeded.

The next longer term targets for the DFMGI start at a price zone from around 3,912 to 3,993, with the higher level completing a 50 per cent retracement of the long-term downtrend. That zone is the beginning of a multi month consolidation phase from 2015.

The next higher price zone is from 4,253 to 4,323.69 and consists of the peak of the General Index 1-week change 1-week % change Advanced Declined consolidation pattern and the 61.8 per cent Fibonacci retracement, respectively. Fibonacci ratio analysis mathematically calculates potential resistance and support zones based on previous price swings.

Giving additional weight to the higher price zone is the fact that a measured move completes in the zone at 4,209.50. This is where the price appreciation of the second leg up in the uptrend matches the price distance in the first leg up. It reflects symmetry between different price swings and is not uncommon in markets, especially market indices.

If a retracement comes before the DFMGI moves higher watch for support to occur above last week’s low of 3,627.86. In the event the index dips below last week’s low it could fall to a maximum of 3,490.66 and still be relatively bullish.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) advanced by 79.32 or 1.72 per cent to end at 4,681.28 last week, while volume jumped to a seven-week high. That’s the highest weekly closing price since early August 2015 and an 18-month high. Market breadth was bullish with 27 advancing issues and seven declining.

Last week’s rally triggered a bullish trend continuation for the one-year uptrend as the index broke out of a multi month consolidation pattern and exceeded the 2016 high of 4,637.24 on a weekly closing basis. Therefore the chance of further upside has greatly increased. In addition, the ADI is now well above its longterm downtrend line.

The next major target for the ADI looks to be a range from around the July 2015 peak of 4,901.05 to the 78.6 per cent Fibonacci of the long-term downtrend at 4,929.26. However, earlier is the 4,723 price area, which is not too much higher from current levels.

Stocks to watch

Keep an eye on Gulf Navigation. The stock has been consolidating around prior 2013-14 highs for the past two months and on support of the 21-day exponential moving average (ema). Volatility has been narrowing during that time indicating that a strong breakout could occur within the next one to two weeks.

There was a significant rally prior to consolidation and the wider market is bullish. Consequently, an upside breakout seems more likely than downside. At this point a bullish breakout is triggered on a decisive move above 1.65. Last week Gulf Navigation closed at 1.61.

Arabtec Holding broke out of descending trend channel last week as it closed above a 10-month downtrend line and above the 200-day ema. In addition, a trend continuation signal was given for the seven-week uptrend.

Strength will next be confirmed on a move above the July 2016 peak of 1.59. The stock closed at 1.49 last week, up 9.56 per cent.

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