The Dubai Financial Market General Index (DFMGI) gained 99.3 or 2.42 per cent last week to close at 4,201.20, its largest weekly advance since the end of April. Volume reached a four-week high (four-day trading week), while the majority of issues showed strength, with 25 advancing and 12 declining. Other signs of strength include the index ending the week at a 12-week, the high for the week, 4,234.24, was at a six-week high, and the week's close in the top quarter of the weekly range.
This is the third week that the DFMGI has tested the 4,253.28 peak resistance area since it was first reached 12 week ago. Given the signs of strength noted above, including increasing volume, the odds for an upside breakout are increasing.
In addition, a bullish ascending triangle trend continuation pattern has formed in the chart. This pattern has a tendency to breakout to the upside. If a decisive breakout occurs a trend continuation signal will be generated for the uptrend that began off the December 2014 bottom. The target derived from the triangle pattern alone would be approximately 4,593.71.
Other potential targets for a rally above 2015 highs include, 4,385 (previous support), and a potential resistance zone from around 4,657 to 4,728 (previous resistance from late-2014). There is also a downtrend line to consider, descending from the May-2014 record peak of 5,406.52. However, the price represented by the line will vary depending on when the DFMGI reaches it, if it does so.
If a breakout does not occur, then a continuation of consolidation can be anticipated.
On the downside, last week's low of 4,101.90, provides near-term support. A drop below that price level cold lead to further short-term weakening. More significant, is the minor swing low at 3,980.80, followed by the May swing low at 3,912.85.
Last week the Abu Dhabi Securities Exchange General Index (ADI) advanced by 89.94 or 1.87 per cent to end at 4,899.79. Volume was at a three-week low, while there were 17 advancing issues and 11 declining.
Even on relatively low volume the ADI managed to close above the prior 2015 peak of 4,896.89, reached four weeks ago. This is a bullish sign that should lead to further upside.
A decisive daily close above last week's high of 4,902.09 is now needed to provide further confirmation of strength, and as a sign that rally can be sustained. If it does then the next target for the ADI is around 5,004.10. That's in the area of two distinct peaks that occurred during 2014. If the ADI is able to exceed those peaks, then the next potential resistance area is around 5,050 to 5,070, determined from the confluence of two Fibonacci measurements and a several weekly highs from 2014.
It's also possible that before going higher resistance will come in around current levels, putting the ADI into a pullback in the near-term. If that occurs then last week's low at 4,812.53 is the first price area to watch, followed by 4,768.53, the most recent previous swing high and now potential support on the way down, and finally 4,710. If 4,710 is breached to the downside then the above potential bullish scenario becomes much less likely in the foreseeable future.
Stocks to watch
Abu Dhabi Commercial Bank (ADCB) broke out of a consolidation pattern last week as it rose above the prior 2015 high of 8.07. It was up 5.58 per cent for the week, ending at 8.33, the high for the week. The stock is now well on its way towards the 8.99 to 9.01 peaks seen from July to September 2014. Since bottoming at 5.05 in December 2012, ADCB has advanced 65 per cent.
In the short-term ADCB is extended, but it can be watched for retracements back into support for lower entries. Previous resistance from 8.07 to 7.95 is where support might be seen during a pullback. At the same time a decline below last week's low of 7.89 puts a bullish scenario at risk of failure.
For the past couple of months National Bank of Abu Dhabi (NBAD) has been trying to complete a bottoming consolidation formation. The top or resistance of the pattern at 11.00 has been hit as resistance on multiple days, including last week. In addition, the 55-day exponential moving average (ema) is now in the zone of that resistance, currently at 10.96. This gives additional significance to the 11.00 price area. Significance in the sense that, either 11.00 will continue to act as a resistance zone, or if an upside breakout occurs, bullish momentum should rise noticeably.
Based on the consolidation pattern the minimum target following a bullish breakout is around 11.50, followed by approximately 12.20, which is where resistance was seen in April of this year. Last week NBAD ended flat at 10.80.
There is a support zone at the bottom of the consolidation phase from 10.50 to 10.45. If the lower price level is exceeded to the downside, then the above potential bullish scenario becomes much less likely.
Bruce Powers, CMT, is president of WideVision and chief technical analyst at www.MarketsToday.net. He is based in Dubai.