Sunday, December 8, 2019
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Bull trend in UAE markets extends higher

Last week the Dubai Financial Market General Index (DFMGI) gained 161.06 or 4.27 per cent to close at 3,931.44, a new five-year high. Volume picked up over the prior week, reaching the fourth highest level of the past 17 weeks, and the ninth greatest of the past two years. Strength was seen across most issues but not significantly. There were 20 advancing issues against 15 declining.

The DFMGI continues to show underlying strength as it has rallied through some potential resistance areas starting around 3,624. It is now close to the next resistance zone, based on the more significant monthly charts, starting around 3,962 and up to 4,060. That zone marked significant support over a number of months back in 2006/07 and now presents a high probability price area where sellers could get much more aggressive in taking profits on their positions. The top of the zone is only 3.3 per cent away.

There has now been twelve consecutive weeks of higher weekly highs and higher lows for the index, meaning that each high and low of the weekly range was above the prior week’s. That’s the most in at least five years. It is a testament to the strength of the rally, but also a sign that the Dubai market is extended with the risk of a pullback growing with each passing week.

Given the points in the two previous paragraphs the odds for more aggressive profit taking showing up soon remains high. The further the DFMGI goes without a pullback the great the potential for a sharper sell off, once it does come.

A move below last week’s low of 3,688.32 would be the first sign of weakness that could lead to lower prices. Confirmation of weakness is then needed, which is indicated on a daily close below that support level. The next two minor support levels would then be at 3,644.10, followed by 3,586. However, once a daily close occurs below the higher price level the chance for an eventual drop down to at least 3,497 is indicated.

On the upside, a move above last week’s high of 3,955.69 gives the next short-term bullish signal.

The Abu Dhabi Securities Exchange General Index (ADI) again ended the week at a new five-year high, marking the eleventh straight week that the index has closed higher than the prior week. It was up 48.65 or 1.04 per cent last week, ending at 4,721.72. Volume barely managed to exceed the prior week but did reach its seventh highest level in at least three years. The majority of stocks did not participate in the gains, however, as declining issues beat advancing at 26 to 24 respectively.

A move above last week’s high of 4,747.86 gives the next trend continuation signal, with a daily close above that price level needed to confirm strength. The next target for the ADI, assuming it continues to ascend in the near-term, would then be from around 4,860 to 4,894. That’s the next potentially significant resistance zone derived from multiple previous monthly support and resistance levels from 2008.

As discussed in prior weeks, although the ADI continues to show strength it remains extended. Therefore, the risk of a pullback in the foreseeable future is higher than it has been since the rally off the most recent swing low (minor low) in November 2013 began. Markets can stay extended and still go higher, which has been the case recently, and it may continue to be the case in the coming weeks. Regardless, investors should understand the market environment to help inform decisions related to individual stocks and portfolios.

A daily close below last week’s low of 4,619.19 will be the first sign of weakness that could lead to a steeper drop. More important would be a decline below 4,497.11, the prior week’s low. At that point a decline to at least 4254.46 is highly probably.

Al Salam Bank has a well formed bullish flag pattern on its daily chart. The flag is a low volatility retracement identified with two parallel down sloping lines containing all price action during the pullback. An upside breakout is indicated on trade above 1.66, with a daily close above that price confirming strength, followed by a daily close above 1.70. Based on the pattern structure a minimum target for the stock once a breakout occurs is 2.25.

As with any consolidation pattern there is always the chance it will evolve over time into a different pattern. At this point support is at 1.45. A deeper pullback is indicated if 1.45 is breached to the downside.

Arkan Building Materials rocketed higher by 27.4 per cent to close at 1.72. The stock broke out of an ascending triangle trend continuation pattern with a gap on the breakout day, which was last Thursday. It is now extended but can be watched for pullbacks, which might provide a safer entry area. The support zone to watch is around 1.50 to 1.46.