18/06/2017 01:21 AST
The Dubai Financial Market General Index (DFMGI) gained 59.34 or 1.75 per cent last week to end at 3,495.44, its third-week up in a row and its strongest performance in 10 weeks. Most issues were up as there were 23 advancing issues against 11 declining, while volume improved slightly over the prior week.
Last week’s price action further signals a likely change in trend, from a downtrend to uptrend. The DFMGI broke out of a seventeen-week descending trend channel on Tuesday on higher volume as it rallied above last week’s high of 3,418.08 and closed above it on a daily basis. At the same time the index moved above both the downtrend line and 55-day exponential moving average (ema), further confirming the significance of the breakout. In addition, the breakout occurred on a gap up, where the opening price was noticeably above the prior day’s closing price thereby providing another sign of strength. Strength continued into the end of the week with the index closing very close to the week’s high.
All of the above analysis points to higher prices. The 10-week high of 3,573.25 marks the key resistance zone at it represents a swing high from the downtrend. A daily close above that price level will give a new sign of strength. Until then watch for short-term resistance a bit lower around 3,515.82.
Watch for further signs of bottoming on any pull back or consolidation. Weakness is likely to be used by investors to accumulate positions in anticipation of a continuation higher. The key support zone is the two-week low at 3,264.36. Retracements at this point should not fall below that low if the general bullish near-term outlook is to be maintained. As of last week’s high the DFMGI was up 6.1 per cent off the two-week low.
Near-term support starts around the 55-day ema, which is currently at 3,421.29. A little lower is the 21-day ema, now at 3,392, and last week’s low of 3,385.50.
Abu Dhabi
Last week the Abu Dhabi Securities Exchange General Index (ADI) was up 25.20 or 0.56 per cent to close at 4,501.77, the first positive week in six. Market breadth was slightly to the bullish side with 17 advancing issues and 15 declining, while volume spiked to a 20-week high!
The ADI is trying to turn the corner but is not yet convincing. It’s encouraging that in addition to high volume on an up week and the first positive week in six, last week’s high was a three-week high and the low was above the prior week’s low. In other words we’ve got the beginning of an uptrend on the weekly chart.
However, the index gave back a bit from its last week high as selling intensified after it hit 4,553.31 on Wednesday. At that point the ADI was up 1.7 per cent for the week. Selling pressure subsequently picked up on Thursday as volume spiked to a five-month high. This is short-term bearish behaviour or at the least reflects remaining investor uncertainty.
The ADI continues to flirt with potential support around the long-term uptrend line which was discussed in previous weeks. Last week the ADI moved back above the line after dropping below it three weeks ago, but looks to have closed just below it last week. By itself the trend line is not an indicator to rely on but can provide some insight when combined with other indicators.
As of now the relationship with the line is showing uncertainty as to whether the odds favour a rally off support of the line, or a break below the line and a continuation of the downtrend.
On the downside, a decisive drop below last week’s low of 4,476 points to an increase in selling pressure. At that point the ADI would next be heading towards a support zone from around 4,443.38 to the swing low of 4,427.30.
Last week’s high of 4,553.31 needs to be exceeded to the upside before there is a clear bullish signal. The index would then have to contend with potential resistance around the downtrend line that descends from the 2017 high of 4,715.05. A
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