UAE markets pause but maintain bullish posture

he Dubai Financial Market General Index (DFMGI) pulled back by 30.20 or 0.81 per cent last week to end at 3,690.39, as volume fell. Performance among individual issues was mixed with 18 advancing while 20 declined.

At the beginning of the week the index managed to peak slightly above the prior week’s high of 3,728.80 but quickly encountered resistance at 3,736.74, the high for the week. The low for the week was 3,648.32, above the prior week’s low of 3,627.86. Therefore, even though the week ended lower, the uptrend was maintained on a weekly basis as we did have a higher weekly high and higher weekly low.

The short-term uptrend is now beginning its fourth week and it is part of a larger ten-week uptrend that begun off the November swing low. That uptrend is part of a larger 12-month uptrend that starts from the January 2016 low. As discussed last week this larger 12-month uptrend has become dominant again as the DFMGI broke out of an eight-month consolidation phase two weeks ago and triggered a bullish continuation of this trend. Therefore, the probability of the DFMGI eventually continuing higher has increased.

A decisive move above last week’s high gives the next bullish signal with a daily close above that price level confirming strength. The first more significant resistance zone is from approximately 3,912 to 3,993. That’s 6-8 per cent above last week’s close. This price zone is composed of both previous support and resistance during multiple months in 2015 and the 50 per cent retracement of the long-term downtrend, which is the top of the range.

Further up is a resistance zone from around 4,253 to 4,323.69, also composed of previous support and resistance on multiple months, but this time over two years, 2014 and 2015. In addition, the top of the price range is the 61.8 per cent Fibonacci retracement price level when measuring the long-term downtrend, which starts from the 2014 high of 5,406.62. This price zone is 15 to 17 per cent beyond last week’s close.

The first sign of weakness that could lead to further selling is on a drop below General Index 1-week change 1-week % change Advanced Declined last week’s low of 3,648.32. At that point the DFMGI heads into a larger zone of support represented by the eight-month consolidation phase noted above.

The top of this zone is from around 3,624 to 3,605. Further down is the most recent retracement lows from 3,501 to 3,491. That’s the more significant support zone as a drop below there puts the overall bullish outlook at risk for a while.

Abu Dhabi

Last week the Abu Dhabi Securities Exchange General Index (ADI) fell by 23.42 or 0.50 per cent to end at 4,704.70. This advance put the index at a new trend high on a weekly closing basis and it occurred with mixed participation by individual stocks as there were 17 advancing issues and 16 declining, leaving room for further strength as more stocks join the rally. Volume confirmed strength as it rose above the prior week’s high and was in the top 10 highest volume weeks of the past two years.

The first target zone of significance is the price area around the June and July 2015 highs of 4,896.89 to 4,902.09, about 4.1 per cent from last week’s close.

At the same time last week’s high of 4,714 is at a potential monthly resistance area up to around 4,725 or so. A daily close above that price level will be bullish, but keep an eye out for increased selling pressure as well. If it does come support should be seen before last week’s low of 3,652.56 as a drop below that level could lead to further short-term selling.

Given the long-term bullish implications of the breakout above the 2016 high that occurred two weeks ago, pullbacks will likely be seen by investors as opportunities to add to existing positions and enter new positions. Therefore, recovery of the uptrend could come relatively quickly compared to what we’ve seen over the past year or more. In addition the large consolidation zone from last year will put the index in a support zone right way as it starts from around 4,637.24 to 4,597.50.

Stocks to watch

Eshraq Properties triggered a breakout of a bullish pennant last week as it rallied above and closed above 1.07 on a weekly basis. Weekly volume spiked to an eight-weeek high with the stock closing up 4.85 per cent to 1.08.

A bullish pennant forms as price consolidates into a relatively small symmetrical triangle following a sharp rise. Before, the pennant triangle forming Eshraq gained 51.3 per cent in three weeks in November before finding resistance at 1.21.

The next potential resistance zone starts around 1.32 and goes up to 1.53, the peak from July 2014.

Within that price zone is the completion of the 50 per cent retracement of the long-term downtrend at 1.41.

The long-term downtrend starts from the 2.40 high in 2014 and goes down to the 0.41 low hit a year ago.

Support is at last week’s low of 1.03. Eshraq needs to stay above this price if there is a pullback in order to maintain its bullish outlook.

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