SUMMARY

Last week was very busy and interesting for equity investors. A number of important data was released. PMIs from European countries, including Poland (positive surprise of PMI index returning above the 50 points barrier), the  MPC and the ECB meetings, and monthlylabour market data from the U.S. The balance of those events meant to be favourable for the stock market bulls. PMIs generally passed without emotions, but the conference after a meeting of the ECB has been read as dovish.Although the bank has not added anything new, Mario Draghi announced that he is working on new measures of quantitative easing and is ready,if needed, to do more. Dovish receipt of these words was best seen in the reaction of the Eurodollar, which fell from around 1.25 to lower than 1.24. On the other hand the MPC did not reduce interest rates (in opposition to analysts’ expectations). The press conference after the meeting has not explained whether that was the end of the mini-series of cuts. Therefore, this decision has been received quite calmly by the market. A slightly smaller increase in jobs with non-farm and private sectors in the US was offset by an unexpected decline in the unemployment rate to5.8%.

These factors were sufficient to keep the optimism on Wall Street, where new historical heights were recorded. Major European indices looked slightly weaker, however scale of decline was very small. In this environment, what has happened on the WSE was quite surprising. The WIG 20 fell by 1.9% and that was large companies that led the sale. Mid caps from the WIG50 remained unchanged, and the small index WIG250 fell by 1%. The MPC decision to keep rates unchanged is not a good explanation because after the decision, banks, that are heavily represented in the WIG 20, gained. Recent drops could have been justified by an increase in geopolitical risk. Fights in Ukraine are now intense but without an open invasion of Russia. Fear that such an attack may occur over the weekend resulted in greater migration of capital out if the Warsaw Stock Exchange. We should also pay attention to the results of the companies - a large part of them showed negative surprises related to sanctions or Russian ruble exchange rate. Such surprises undoubtedly include the poor performance of LPP.

This week will not be as rich in data and events as the previous one, but still some interesting information will be released. From Poland, primary release will be CPI for October, which is likely to continue in the deflation band of 0.3-0.4% y/y, and initial GDP growth for the third quarter. It is expected to slow down to 2.8%, but if it would be above 3% the chances of a positive response WSE are high. Next would be third quarter results of companies like Enea, KGHM, PZU, CP or Synthos.

TeCHNICAL ANALYSIS

Graph 1. WIG20 daily. Source: Stooq

The level of pessimism on the WSE negatively surprised investors last week, when the WIG-20 index lost 1.9%, negating previously generated buy signals. Therefore, the situation is slightly more complicated because the technical level of 2,500 points is now separated by the resistance level of 2450 points. As we are currently at a 2400 points level it is close to generate a signal with a potential decline in sales to 2,350 points. This level is crucial and if bulls fail to maintain it, a return to 2350 points is very possible, and as a result there will be a chance to create a double bottom formation.

Graph 2. CCC Daily. Source: Stooq

We have selected CCC as a company of the week because of it has established, in impressive style, a new historic high of 145.9 PLN. After Friday’s news that the company will enter the MSCI index, with a  support of a high demand stock, impressively broke out from 130 PLN consolidation. This was done with a huge turnover, confirming the high value of the signal. After such a large increase a cooling correction towards 140 PLN would be natural. If this support would be pierced, the reliability of the signal to buy will decrease. Further support is close to 133 PLN. However, the more likely scenario is to maintain a level of 140 PLN.

Authors: MM Prime TFI S.A. Investment Management Team

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