Thursday, September 24, 2020
Home > Production > UAE markets show strength that could lead to further upside

UAE markets show strength that could lead to further upside

Last week the Dubai Financial Market General Index (DFMGI) rallied 67.43 or 2.29 per cent to close at 3,013.34. It has gained 87.07 per cent for 2013, retaining its position as one of the strongest equity markets globally. Most issues participated in the rally with 25 advancing and seven declining. Even though it got close the index did not get above the prior week’s high of 3,019.70. But it did close above it, for the highest weekly close since late-October 2008. Volume has not yet confirmed the strength in price as it was at a four-week low, although not much lower.

A daily close above last week’s high gives the next bullish trend continuation signal. In that case volume should improve over last week as more investors recognize the likelihood for further gains. The DFMGI then targets the 3,048.79 resistance area, followed by the more significant 3,212 resistance zone, where it would complete a 38.2 per cent Fibonacci retracement of the long-term downtrend starting from the January 2008 peak.

The earlier and higher peak from late-2005 starts the long-term downtrend line. For the past couple of months the DFMGI has been sitting around support of that line. If it can close above the most recent high then it starts to move away from the line. That would be another bullish sign for the long-term outlook.

As long as the index stays above last week’s support of 2,941.82 the odds favour continued strengthening. If last week’s low is broken then watch for support around 2,863.92, followed by 2,755.45, the most recent swing low.

The Abu Dhabi Securities Exchange General Index (ADI) gained 89.8 or 2.33 per cent last week to close at 3,939.64. It’s now up 50.0 per cent for 2013. The week ended strong, at a 10-week high and above a key near-term resistance. Strength was accompanied by an increase in volume to an eight week high, and last Thursday was the sixth highest volume day of the past two years! Most listings were active resulting in 32 with positive performance and 14 negative.

Last week’s performance continues the recovery following a 13.1 per cent correction in September off the 3,974.74 August peak, and increases the odds that the ADI is ready to continue its long-term uptrend which began from the January 2012 low. The index has gained 71.8 per cent since January 2012. A rally above the September peak is needed next for a bullish trend continuation signal, while a daily close above that high will provide important confirmation of strength. The rally should continue from there.

The ADI would then be targeting the next more significant potential resistance zone around 4,198, that’s 6.5 per cent above last week’s close. This would complete a 50 per cent retracement of the long-term downtrend coming off the 2005 high. Higher still is monthly resistance at 4,413.40.

For the past five months or so the ADI has been hovering around its long-term downtrend line that comes down from the 2005 high, and more recently has been above it. This downtrend line represents dynamic resistance of the downtrend and once surpassed to the upside, support. A decisive move higher and away from the line will provide another bullish sign for the long-term uptrend. That begins on a daily close above the August high.

Last week’s low of 3,875.42 is near-term support that should hold if the ADI is to have a chance of breaching the August peak in the foreseeable future. Below there is potential support at 3,762.80, the most recent swing low.

Union National Bank (UNB) has been consolidating for the past four months. During that time a clear trend line at resistance has been identified and hit multiple times. The stock was up 1.21 per cent last week and ended at 5.00. A bullish breakout is triggered on trade above 5.12 wherein more aggressive buying may be seen that could take the UNB above its August high of 5.37. The next target thereafter would be around 6.83, which is where resistance was seen back in July 2008. Support is now around 4.80.

Ras Al Khaimah Cement (RAKCC) surged higher by 13.6 per cent last week to close at 1.08, thereby triggering a breakout of a multi-month consolidation pattern (above 1.04). The move was accompanied by significant volume and provides some confidence that this could be the beginning of a new run. Volume for the week reached the third highest level in at least three years.

An upside continuation is likely to follow with pullbacks to lower prices used by investors as an opportunity to enter. This should help cushion any declines in the near term as the significance of the breakout takes hold. The target derived from the consolidation pattern is around 1.33. But first the stock needs to get above potential resistance at 1.18, a four-year high. A drop below 0.90 negates the bullish outlook as it would be a sign that the bullish breakout has failed.

Bruce Powers, CMT, is a financial consultant, trader and educator based in Dubai, he can be reached at bruce@etf-portfolios.com.