Summary

While earlier for an extended period, we have seen the relative strength of the Warsaw Stock Exchange, last week Polish investors were rather on the defensive. Foreign capital apparently was waiting for developments, as WIG20 increased only by a symbolic 0.1%. The same capital is unlikely to be pleased with the results of the presidential elections in Poland, the outcome of which increases the likelihood of changes in the balance of power in parliament after the autumn elections. Part of populist proposals may be received as a risk to the stability of the Polish budget. Additionally, one of the slogans of A. Dudy was to deal with the problem of franc loans on non-market terms, favoring clients. Banks may therefore be under greater downward pressure. But we should not overestimate the importance of political risk in Poland, and it won’t be main reason of a potential weakness in WIG20. The broad market index WIG index lost 0.1%, due to the retreat of small and medium-sized companies - sWIG80 went down by 1.2% and 0.6% mWIG40 loss. This may be largely due to the completion of the publication of the results season and a desire to capitalize profits or reduce losses, as corporate earnings surprised on both sides.

WSE with its minimal changes more than Western Europe exchanges imitated the Wall Street. There, however, minimal changes are taking place at record levels for the indices. Last week, we noted another historical records on the S&P500 and DJIA. The FOMC meeting minutes did not bring anything new - low probability of rate hikes in June is already discounted. In contrast, eurodollar heavily resulted in only slightly higher-than-expected US core inflation, because it actually can be a factor in accelerating the rate hikes in the US. But we are talking about the autumn dates, so the capital market don’t bother.

Otherwise the foreign currency market, where the euro strongly declined last week, going down to the neighborhood of 1.10. While previously strong common currency was said to cause a large correction in the export markets, German and French, so now it was a factor strengthening the rustic indexes. The ECB also contributed. Member of the Board of the institution, Benoit Coeur, mentioned earlier in the week about the possibility of further interest rate cuts in the euro zone, as well as increasing the scale purchases of government bonds before the holidays, during the holiday period to be able to slightly reduce it. DAX went up by 3.2%, despite not very good data from the German economy, and the CAC40 gained 3%. This week the most important are US data, including durable goods orders, the PMI for services, the Chicago PMI and revised GDP.

Technical analysis

Graph 1. WIG20 daily. Source: Stooq

Last week the WIG20 changed a little. Blue chips grew by a 0,1%. Index consolidate around 2500 points and it is still above the important suport level of 2476 points. Consolidation has been going on several days and at the moment it looks that it forms a flag formation, which is an continuational pattern and usually occurs in mid-movement. This would mean that the WIG20 still has a considerable growth range, but the resistance at 2560 point hasn’t still beaten. Flag pattert is supported by the falling turnover, which makes it more credible.

Graph 2. PKN Orlen daily. Source: Stooq

WIG20 changed a little, but PKN Orlen is one of the strongest stocks in blue chips. Shares rocket by 5,3%. Another considerable resistance at 70 PLN has been beaten and now this level is a nearest support. Orlen is now at the historical record so it is hard to say about new resistance. While the price is stiil above 70 PLN, buying signal is active. However, the RSI oscillator looks interesting, because there is a bearish divergence, which means that the buyers have loosing their advantage. Going below the level of 70 PLN will negate a buy signal. The next support is 65 PLN, whereby its test would still break the accelerated uptrend line. The normal line is far away from the current price.

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

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