11/06/2017 02:43 AST
The Dubai Financial Market General Index (DFMGI) gained 48.37 or 1.44 per cent last week to close at 3,400.10. This was its strongest performance in nine weeks. Market breadth was positive with 20 advancing issues and 16 declining. Given the bullish performance volume was supportive as it reached a 12-week high.
Last week’s strong performance is showing the early signs of a potential trend reversal as the high for the week was a three-week high. It followed a half-day sell-off to new lows for the downtrend earlier in the week, but the index quickly recovered to close back above the prior trend low. This reflects a shift within one day from sellers dominating sentiment to buyers dominating and is a bullish sign.
Fortunately, the high for the week was 3,418.08, right around resistance of the convergence of the downtrend line and the 55-day exponential moving average (ema). The 55-day ema is currently at 3,419.73. For the past couple of months the 55-day ema has been a good proxy for the downtrend line, and it remains so.
Given the chart structure of the downtrend, plus the fact that last week’s high, the downtrend line, and the 55-day ema all point to a similar area of resistance, a breakout above that high takes on a certain significance. If exceeded to the upside a rally above that price zone points to a new bullish signal towards a potential reversal of trend, from a downtrend to an uptrend.
Since reliable bottoms sometimes take a little time to develop, in the short-term it wouldn’t be surprising to see weakness first and a test of last week’s lows before an upside bullish move, if it is to come. Regardless, a daily close above 3,418.08 confirms strength and a bullish breakout of the descending trend channel. The first target of significance would then be around the most recent swing high of 3,573.25 (nine-week high).
Nevertheless, the index remains in a 17-week descending trend channel with downward pressure remaining unless proven otherwise by a daily close above last week’s high. If the DFMGI sells off from last week’s close then it may continue to decline within the confines of the descending trend channel. In this case last week’s low of 3,264.36 could be exceeded to the downside. The key support zone would then be around the 3,195.49 price area, which is the low of the past sixteen months, along with the lower channel trend line.
Abu Dhabi
Last week the Abu Dhabi Securities Exchange General Index (ADI) was essentially flat, dropping by only 2.24 to close at 4,476.57. There were 12 advancing issues against 21 declining, while volume jumped to a fifteen-week high.
The high-to-low price range for last week was contained within the range of the prior week thereby creating an inside week. Last week’s high is 4,496.18 and the low is 4,443.38. We can thus use a break through either the high or low for the week as a signal for whether the ADI is getting stronger or weaker.
The greater risk at this point is to the downside as the index dropped below its long-term uptrend line two weeks ago and closed below it last week on a weekly basis. In addition, the ADI has been progressing within a large descending trend channel since the beginning of the year. If the channel continues to develop then we could eventually see lower prices approaching the lower range of the channel.
A break below last week’s low is a sign of weakness but a drop through the two-week low at 4,427.30 will be more critical as that will signal a continuation of the four-week downtrend. The next lower support would then be around the 2017 low of 4,355.26. However, if the ADI continues lower from the 2017 low than it will be heading towards the lower descending trend channel line, which is the same trend line as the long-term downtrend line that starts from the 2014 highs.
An upside breakout above last week’s high will put the index back above the uptrend line
Gulfnews
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