Optimism returns to UAE markets as volumes inch up

he Dubai Financial Market General Index (DFMGI) was up 59.06 or 1.63 per cent last week to end at 3,682.81. Market breadth was mixed with 19 advancing and 19 declining issues. Volume increased slightly above the prior week.

For the past five weeks the index has been consolidating within a relatively tight range up against resistance. Last week’s high of 3,738.69 is now the top of the range as it slightly exceeded the prior 3,738.28 high from three weeks ago.

The consolidation pattern on a daily basis had previously taken the form of a double top trend reversal pattern, but as of last week it has evolved into a potential triple top. At the same time the consolidation pattern could easily continue to evolve into a different pattern. Neither topping pattern is confirmed until there is a trigger and even then a breakout can fail. A breakdown of the double top was triggered two weeks ago on a daily close below 3,648.32. But given last week’s strength the bearish pattern has failed to follow-through to the downside as it normally might.

At the bottom of the triple top consolidation pattern is support of 3,613.46. If there is a decisive drop below that price level and subsequent daily close below it a breakdown of the triple top is triggered. Based on the pattern alone the minimum target would then be around 3,488.23. It’s interesting to note that the prior swing low support from December was at 3,490.66 and the 200-day exponential moving average (ema) support is currently at 3,481.31. Further, the 50 per cent retracement of the uptrend coming off the November low is at 3,467.09. Together, these price levels create an important support zone from around 3,490.66 to 3,467.

Rather than weakening in the shortterm the DFMGI could strengthen and breakout to the upside. The larger developing uptrend pattern is bullish and pullbacks off recent highs have been relatively weak, reflecting underlying strength. In addition, the developing consolidation pattern has been forming above support of the previous multi-month basing consolidation pattern. In other words, prior resistance has become support, which is General Index 1-week change 1-week % change Advanced Declined bullish behaviour. With an upside breakout the DFMGI would first be heading towards a resistance zone from around 3,912 to 4,025, followed by the 2015 peaks from approximately 4,234 to 4,253.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) gained 123.28 or 2.77 per cent last week to close at 4,569.49, its best performance in nine weeks. There were 22 advancing issues and 13 declining, while volume fell slightly to a five-week low. Last week’s rally came off an important support zone defined by a number of trend indicators. These include the prior swing low (4,436.65) from late-December, support of both the 200-day ema and 55-week ema, and the 50 per cent retracement (4,446.57) of the uptrend coming off the November low. The low of the recent pullback is at last week’s low of 4,439.03.

A strong rally as seen last week is a good indication that the pullback is over and the longer term bullish sentiment can again drive the index. However, such expectations are not confirmed until there is a daily close above last week’s high of 4,586.88. Once that occurs the ADI would again have a good chance of eventually busting above the recent 4,714 peak. Higher targets include the July 2015 peak at 4,902.09.

Stocks to watch

Takaful House was up 1.77 per cent last week to close at 1.15. The stock has been in a retracement since hitting resistance at 1.61 six weeks ago. Since then it has fallen as much as 31.7 per cent as of the 1.10 low hit in each of the past two weeks.

Support of the pullback is right around support of the 55-day ema. It’s therefore possible that Takaful House has found a bottom for the retracement and it could be close to moving higher again. A decisive move above the two-week high at 1.25 will give a bullish signal.

The stock had two sharp rallies over the past eight months. The first was in June of last year where Takaful gained just over 136 per cent in five weeks. A 22-week consolidation retracement followed. Once that retracement was complete the stock took off again, jumping 75 per cent in just two weeks. Dubai Islamic Insurance & Reinsurance broke out of a bullish wedge last week as it closed above the downtrend line and above 1.03. The stock was up 4.04 per cent to end at 1.03 as volume spiked.

A bullish wedge is a trend continuation pattern. Last week’s breakout marks the potential beginning of a second leg up in the stock following a 124.6 per cent threeweek rally starting near the end of last year. Since hitting a high of 1.24 five weeks ago the stock has been in a retracement, which took that form of a wedge. The pattern has formed at support of the 21-day ema, another bullish sign.

One concern is that although the breakout was decisive Dubai Islamic closed relatively weak, in the lower half of the week’s range.

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