Summary

European stock exchanges were in retreat in the past week. The scale of declines were similar to previous week gains. Positive technical situation was negated on DAX (declined by 2.2%) hence the risk of descent to 11,000 is quite substantial. The Paris CAC40 also declined, but in a slightly smaller scale (by 1.9%). Most of a week government bonds were in retreat. German Bunds recovered some losses towards the end of the week. The upward trend in government bond yields is rapid, and given how hard they have been "inflated", the market is afraid of a burst of the bubble. What is more, increases of the Eurodollar are supporting competitiveness of the European economy. We are seeing sizable gap between what is happening in the euro zone, and on Wall Street. Last week the S&P500 index gained 0.3%, finishing off close to record levels. The DJIA went up by 0.4%, also close to a historic high. Losses from the correction are being inverted also on the NASDAQ, gaining 0.9%. Paradoxically, the stock market in the US is supported by weaker readings of the local economy (mainly the worse-than-expected retail sales and industrial production). Weaker data defers the the decision to raise interest rates.

This time, the Warsaw Stock Exchange did not outperform European stock exchanges and recorded a correction. The WIG20 fell by 1.3%, the WIG index lost 0.8%. Mid caps fared well - mWIG40 depreciated only by 0.2%. Small caps fall harder, sWIG80 lost 0.8%. PKO BP and PGNiG added poor performance to the WIG20 return. In the case of the largest Polish bank market did not like the results presented, after which the value of biggest polish bank decreased as much as 5.2%. PKO BP weight in the WIG20 index is 14%, hence this fall translated to index drop of 0.73%. The second problematic stock was PGNiG, where concerns were raised after the information that Gazprom filled case in arbitrage court. It was expected earlier that both parties can make friends right away on lower charges for gas imported from Russia. Now it looks as this is not the case. After this information PGNiG lost more than 8%. As the company's share in the index is much smaller (5%) impact on the WIG20 is not that substantial. Corporate earnings season is about to end with few negative heroes. Shareholders of Action and TelForceOne are among players heavily impacted by disappointing quarterly results.

The overall picture and performance of the Warsaw Stock Exchange during declines in the DAX and CAC40 should be perceived as positive, with high chance of continuation of the bull market. The key readings for this week are: readings of PMI indices for services and industry from Germany, France and the euro zone, as well as similar data from the US industry. Investors on the Warsaw Stock Exchange are curious if the dynamics of industrial production and retail sales confirm a stronger recovery in our economy.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

The WIG20 lost 1.3% last week which is exactly the same percentage of last week’s gain. This should not be regarded as demand-side weakness. The WIG20 consolidates around the level of 2500 points, just below the resistance at 2560 points. This consolidation is accompanied by falling turnover, hence it looks like a stop ahead of a larger movement. Raising above 2,560 points would open the way to the level of 2634 points, or a maximum of 2013. On the other hand falling below an important support level of 2,476 points, would generate a risk of a decline by another 100 points.

Graph 2. CD Projekt daily. Source: Stooq

Information about good reviews and high pre-sale numbers of Witcher 3 pushed the price of computer games developer CD Projekt to new historical maximum - PLN 25.74. This level is also the closest resistance. Last week price rose by 19%, with a clear increase in turnover, which confirms the strong upward move from consolidation levels. While the is above 22 PLN, a buy signal will be present. Looking at the RSI oscillator, warmed up in a strong buyout areas, you should expect some correction. If it will take the form of a flat consolidation, bulls chances of movement continuation will increase. It is worth remembering that The Witcher 3 release date falls on 19th of May that is this week.

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

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