ADI’s most recent swing low of 4,528.67 was exceeded to the upside on a daily closing basis
Dubai: Last week the Dubai Financial Market General Index (DFMGI) advanced by 37.90 or 1.07 per cent to end at 3,575.32. There was positive market breadth, with 22 advancing issues and 15 declining, while volume reached a five-week high.
The DFMGI managed to exceed the most recent 3,573.25 swing high from April and close above it on both a daily and weekly basis. This is bullish for the intermediate-term trend.
Regardless, in the short-term the two-week uptrend is showing signs it may be running out of steam. The Relative Strength Index (RSI) momentum oscillator reached overbought and started to turn down for the first time since January and the week ended around the 50 per cent mark of the week’s range. Also, the final three days last week pulled back and we could easily see the DFMGI fall further, especially as it follows seven consecutive days of positive performance.
Resistance for the week was seen at 3,609.09. At that point the index was up 10.6 per cent in six weeks from its June swing low of 3,264.36.
Given last week’s healthy performance, plus the relatively strong closing price, as well as the bullish structure of the six-week uptrend, there remains a good possibility that the 2017 high of 3,6839 from February will eventually be tested and possibly exceeded to the upside following what could be a mild retracement. A continuation of the uptrend with a rally above last week’s high will shortly reach the next resistance zone around 3,604.70 to 3,658.61. That’s a resistance zone identified during three rally highs in 2016.
If further profit taking does push the DFMGI lower in the short-term it may not go too far before again meeting enthusiastic buyers. The more obvious potential support zone of any significance on the way down is around 3,466 to 3,465. That’s right around where the 200-day exponential moving average (ema) and the most recent resistance swing high resides. However, the first area to watch for support is around last week’s low of 3,537.35.
The Abu Dhabi Securities Exchange General Index (ADI) increased by 34.42 or 0.76 per cent to close at 4,552.49. There were 25 advancing issues and 12 declining, while volume just barely exceeded the prior week’s level.
At the week’s high of 4,594.16 on Wednesday the ADI was above its downtrend line for the first time and closed above it on a daily basis. That didn’t last long though as by Thursday’s close the index had fallen to a three-day low and ended the week right around the middle of the week’s range, not a sign of strength. At the high the ADI was up 5.5 per cent off its 4,358.36 swing low from three weeks ago.
Closing above the downtrend line on a daily basis is a sign that the index is trying to go higher. To be convincing we’ll have to again see a daily close above the line. More importantly we need to see a daily close above the 4,627.77 swing high from May. At that point the ADI will give its next clear sign of strength, which could be followed by a test and possible breach of the 2017 high at 4,715.05.
The good news for the bulls is that the most recent swing low of 4,528.67 was exceeded to the upside on a daily closing basis. This invalidates the bearish flag discussed in this column in previous weeks. Regardless, overall the ADI remains under pressure in a long-term wide ranging descending trend channel until it gets back above the downtrend line on at least a daily closing basis.
Near-term support is around last week’s low of 4,511.86. Just below that is potential support around a confluence of daily moving averages in the area around 4,494.
Stocks to Watch
Granted, DXB Entertainments has had a tough time since peaking at 1.77 last August. At the 0.73 low hit two weeks ago the stock had fallen 58.8 per cent from that high. DXB has the second worse performance in the Dubai market over the past 12 months and year-to-date, down 52.19 per cent and 41.15 per cent, respectively.
Regardless, all bad things come to an end. The low two weeks ago may have been the start of a bullish double bottom pattern formation. The first bottom was at 0.731 eight weeks ago. This is a classic trend reversal pattern in technical analysis. However, the stock has to breakout of the pattern to the upside before it is valid. Until then it is just a potentially bullish pattern. A breakout occurs on a decisive move above 0.81.
Of course, given that DXB is so beaten up, once a turn does occur there is lot’s of upside potential. At the same time a drop below the 0.73 low will indicate a failure of the bullish move and points to further weakness.
If a bullish breakout occurs the first intermediate-term target for DXB would be around the 0.98 price zone based on Fibonacci ratio analysis. That’s where the 23.6 per cent retracement of the long-term downtrend completes. If exceeded, DXB would next be heading towards the 38.2 per cent Fibonacci retracement price zone around 1.13.
Last week DXB ended up 0.92 per cent to close at 0.765.
Bruce Powers, CMT, is chief technical analyst at www.MarketsToday.net.