UAE MARKETS CONFIRM STRENGTH.
Last week the Dubai Financial Market General Index (DFMGI) surged by 325.81 or 8.68 per cent to close at 4,079.91, near the high for the week. This was the index's largest advance in 16 weeks. Market strength was widespread, with 34 advancing issues and only five declining, while volume spiked to a nine-month high, giving support to the probability of a continuation higher in the near-term. The index completed its third week of an advance off the March low of 3,232.79, and has gained as much as 26.3 per cent since.
The 14-day Relative Strength Index (RSI) indicator has now moved into overbought territory, reaching 75.9, the most overbought since May 2014 (above 70 is overbought). That was when the DFMGI reached the highs of the past six-and-three-quarter years. The RSI is used as a measure of momentum and to help to determine when a market is extended and may be due for a pullback. However, a market can be extended and still go higher. In this case, it does look like further upside is likely as there are a number of signs supporting higher prices. How much further in the short-term before a pullback occurs remains to be seen.
First, a bullish breakout of an ascending triangle consolidation pattern triggered on the move above 4,008.38 last week. The pattern points to a potential target of approximately 4,995.6. Even it is not eventually reached, such a higher target supports the likelihood of further upside. In addition, both momentum and daily volume spiked (highest last Thursday since early-July 2014) on the breakout, supporting the bullish significance of the move. Further, both the 55-week exponential moving average (ema) and the 200-day ema, trend indicators showing potential resistance while price was below them, were exceeded to the upside on the breakout. Finally, the breakout also triggered a trend continuation of the 17-week uptrend, begun off the December 2014 low.
The next target zone above last week's high of 4,082.56, starts from around 4,199.58 (50 per cent retracement of full downtrend off the May 2014 highs) and up to 4,255 (prior support and resistance). Within that zone a measured move or AB = CD pattern completes at 4,248.6. This is where the price appreciation in the second leg up (began at low from four weeks ago) of the 17-week uptrend matches the first, and reflects symmetry within market moves. Still higher, is a potential resistance zone around 4,385, followed by 4,484.44 (61.8 per cent Fibonacci retracement).
On the downside, the three-week uptrend remains in place unless there is a decline below last week's low of 3,753.59. Ideally, a pullback in the short-term would find support in an area starting from the 4,008.38 breakout level to approximately 3,884. That lower price level was an area of resistance (prior resistance becomes support) on four different weeks during the past four months.
The Abu Dhabi Securities Exchange General Index (ADI) rallied 92.94 or 2.04 per cent to close at 4,655.80, near the high of the week and completing its fourth consecutive up week. Volume jumped to a 16-week high, while there were 24 advancing issues and 14 declining.
Last week's advance put the index above both the downtrend line and the 55-day ema, plus the 200-day ema, each bullish behaviour on their own but more so when occurring together. However, the ADI has not yet triggered a continuation of the 17-week uptrend. That occurs on a decisive move above the most recent peak of 4,703.58, which is also an area that the ADI could see short-term resistance.
If it does rise above that peak, and given the strength in the DFMGI it looks likely, the ADI would next be heading towards 5,004 (prior resistance) to 5,079.32, the completion of a measured move coming off the December 2014 lows. Weekly support is at last week's low of 4,539.32, followed by the prior week's low of 4,516.78.
STOCKS TO WATCH
Shuaa Capital was up 7.14 per cent last week ending at 0.75, the high for the week, while volume hit a six-week high. Two weeks ago the stock broke out of a symmetrical triangle pattern as it rose above the 55-day ema. Support was tested last week during a pullback, with the stock subsequently ending at the highest weekly closing price since late-November 2014, and back above its 100-day ema. This is bullish behaviour pointing to higher prices.
The target derived from the triangle pattern is approximately 0.96, which is in the area of prior support and resistance price levels that would create a target by themselves, in particular the bottom on July 1, 2014, which was at 0.95. First, Shuaa will have to contend with potential resistance in the area of the 200-day ema, which is now at 0.84. The stock has been mostly below its 200ema since September of last year. Currently, a drop below 0.65 support would put the above bullish scenario in doubt.