Bulls continue to gain ground

22/10/2017 06:20 AST

The Dubai Financial Market General Index (DFMGI) advanced by 12.50 or 0.34 per cent last week to close at 3,672.77. That’s the highest weekly close of the past eleven weeks. There were 21 advancing issues and 17 declining while volume jumped to a 35-week high.

There were other signs of strengthening last week as well. Although the index didn’t make much progress it did manage to close above the prior week’s high of 3,661.48 on a weekly basis and above the most recent swing high of 3,667.42. Plus, this occurred on much higher volume. Sometimes spikes in volume can be a leading indicator and it looks like that may be the case here.

Last week’s high of 3,676.65 pushed up against resistance of 3,681.11, which is the August high and high for the four-month uptrend. Given the bullish signs just discussed, especially higher volume, the odds favour a breakout above the August peak within the near-term. If that occurs a continuation of intermediate-term uptrend (19-week) will be triggered. All of the points above further confirm the likelihood that the minor correction off the August high has completed and the uptrend is getting ready to proceed. Regardless, nothing is for sure until we see further bullish signs as noted.

Following confirmation of a breakout above the August high the DFMGI will next be heading towards the 2017 highs around 3,738.69. Since the index bottomed in January 2016 it has progress higher within an uptrend structure of a series of higher swing highs and higher swing lows. Until there is information to the contrary we should anticipate a continuation of this bull trend. That means there is a good chance the index will breakout above the 2017 high if it exceeds the August high. If the 2017 high is exceeded then the next potential resistance zone is up around 3,923.

The support level to watch is last week’s low of 3,631.55 as a drop below it makes the above bullish scenario less likely in the near term.

Abu Dhabi

The Abu Dhabi Securities Exchange General Index (ADI) fell by 20.57 or 0.45 per cent last week to end at 4,505.31. Volume declined while market breadth reflected uncertainty with 14 advancing issues and 17 declining.

Two weeks ago the ADI had a strong move of 2.5 per cent so it’s not too surprising the upward momentum took a break last week. Earlier in the week the index did manage to move slightly above the prior week’s high over two days but strength could not be sustained. The pullback off the 4,531.65 high from last week has been minor so far, just barely retracing a third of the prior rally. So, further weakness is also not a cause for concern. As long as the index does not fall below the recent low of 4,396, the odds continue to favour a resumption of this rally.

Since late December 2016 there have been four rallies that started off swing lows and the gains were between 5.2 to 6.9 per cent. The current rally was up 3.1 at last week’s high. By this metric alone more upside should be seen in this rally.

As noted before there is a downtrend line coming across the sequential declining peaks that have occurred this year and that line would be a first target for the current rally.

Unfortunately, since the line is descending the price it represents will depend on when price reaches it. A guess would put it roughly around 4,560. Nevertheless, the current rally will equal the shortest rally this year at around 4,624. This means that if the prior rallies are an indication for the potential of the current rally then there is a good chance the downtrend line will eventually be exceeded and the prior swing high 4,608.64 will be exceeded as well, at a minimum.

Stocks to watch

Union Properties broke out of a large bullish falling wedge price formation last week as it moved above the downtrend line and the breakout level of 0.902. The breakout was decisive with volume spiking to a 42-week high and the w

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