Dubai equity investors breathe a sigh of relief

The Dubai Financial Market General Index (DFMGI) was up by 61.38 or 2.22 per cent last week to close at 2,825.76, its strongest performance in 16 weeks. There were 14 advancing issues and 22 declining, while volume dropped to a four-week low.

We now see an early sign of at least a short-term reversal as last week’s close was above the prior week’s high of 2,812.07 and the low of 2,744.61 was above the previous week’s low of 2,727.83. The previous week’s low was a low for the current 19-month downtrend and the lowest price seen in the DFMGI since January 2016. At that point the index had fallen 26.7 per cent from the multi-year peak reached in early February 2017.

Having one higher weekly high and higher weekly close is the first stage of an uptrend. Regardless, at this point we’re just looking at the possibility of a short-term uptrend or bounce as the larger force remains down until we see additional signs of strength. A daily close above the most recent swing high of 2,986.36 would be the next indication that the index could continue higher.

It does look like the three drives to a bottom bullish reversal pattern discussed a couple times in recent weeks may be coming to pass. That’s where there are three successive swing lows, each lower than the previous, and relatively close together. Given last week’s strength it now looks like the low from two weeks ago is the third successive swing low. If true, the bullish move last week could continue.

The most recent and more significant swing high was eight weeks ago at 2,986.36, which is where resistance was seen leading to a continuation of the bearish trend to new lows. Now that we’re heading back towards that price zone we may see resistance again.

At the same time, a daily close above that level will be bullish as it would be the first time since the October 2017 swings highs that the DFMGI has rallied and exceeded a prior swing high. That’s what’s needed to tell us that an intermediate if not a long-term bottom is being established. Of course, a drop below the trend low of 2,727.83 will signal a continuation of the bearish trend, with the DFMGI next heading towards the January 2016 low of 2,590.72.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) was also up, rising 64.50 or 1.32 per cent to end at 4,947.92. This was the strongest performance in a month. Market breadth favoured the bullish side, with 15 advancing issues against 11 declining. Volume for the week was at a four-week low.

For the past six weeks the ADI has continued to test support around 4,861 to 4,859 and it has held. Although there has not been any real upward progress recently the fact that the index has been unable to fall is bullish. Particularly, since the consolidation has been happening near four-year highs.

Following a 15-week 10.7 per cent advance starting in May, the ADI has barely retraced since hitting a top of 5,039.83 five weeks ago. The decline since then has been no more than 3.5 per cent. This is another sign of underlying strength.

So, on the downside the support level to watch is 4,859. A daily close below that price level will likely lead to further downside, at least in the short-term.

On the upside we can watch two patterns. The first one is based off the monthly chart. In this case, for September we have an inside month, where the high and low for the period was contained within the high-to-low range for the month of August.

Therefore a decisive breakout above the September high of 5,004.81 will be a bullish signal. Or, we can watch the weekly chart. In this case, there has been a series of lower weekly highs the past four weeks. A more aggressive bullish signal will occur when we rally above last week’s high of 4,959.76 as the pattern of lower weekly highs will be broken.

Stocks to watch

Emirates NBD was the top performer in the Dubai market last week, rising 0.60 or 6.7 per cent to close at 9.50. Weekly volume hit a six-week high on the advance and the stock closed strong, in the top quarter of the week’s range.

In addition, last week was the highest weekly close in seven weeks. It follows a fall to new lows for the downtrend two weeks ago. Given last week’s rebound, it looks like the prior bearish implications are starting to reverse. This doesn’t mean Emirates NBD goes straight up, but it should now be watched more closely for an indication that the correction could be winding down. Since hitting a peak of 11.00 in March, the stock has declined as much as 21.3 per cent as of the low two weeks ago at 8.66.

For the past four weeks or so the stock has been consolidating around the low and looks to need more time to consolidate before a clearer pattern evolves. It’s just not clear yet clear which price levels can be used as a signal. With a little more time the situation should come together.

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