Summary

Last week ended well for Warsaw indices - all finished in positive areas. Large companies grouped in the WIG 20, grew by 1.5%. Medium caps from the WIG50 went up by 1.3% and the weakest, small companies from WIG250 increased their valuations by 0.5%. Such a distribution of growth is not surprising considering the global factors as main reason for the dominance of the bulls on the WSE. If you look at the results of the developed markets it is seen that the WSE really was one of the stragglers. Despite the weak reading of the Ifo index and the results of retail sales for September the DAX gained 3.8%, declaring a clear desire to return to a bull market. The CAC40 and the FTSE also ended the week on a considerable pros, respectively 2.5% and 2.7%.

The buy signal came from the US, where the indices approached the bull market peaks. The S & P500 closed at the highest level in the history of 2018.05 points (intraday record is 2019.26 points), while the DJIA broke a new historical high at 17 395 points. This happened despite the strengthening of the dollar, preceded by hawkish Fed meeting. The issue of soundness of labor market and inflation risk growth in the long term was raised during the meeting. Stock market looks positive to macroeconomic data - 3.5% GDP growth in the third quarter and strong Chicago PMI readings. On the top of this earnings season on Wall Street is quite strong. So far there were more positive than negative surprises. The Bank of Japan which unexpectedly increased value of the bond purchase program gave a powerful impetus at the end of the week.

Looking forward it seems that the current week will decide whether we are entering a new phase of the bull market, and the latest correction goes into oblivion. Series of industrial PMI readings from Europe (including Polish) will be released today. This, however, will not be very crucial for the situation on the stock markets, but the end of the week. For the WSE, the MPC meeting may be important but in our opinion the most likely scenario is consistent with the consensus (reduction by 25 bp.), Hence this decision does not necessarily affect the indices at Ksiazeca street. The ECB meeting on Thursday is important, especially in the context of the recent rumors about the beginning of the end of the commercial bonds purchase program. It seems that investors can ignore weak data from Europe just in the expectation that they will convince the ECB to further decisive steps toward loosening monetary policy. Thus, in place of the blanked QE3, new programs may be launched. On Friday, we learn something new about the condition of the US labor market. Readings of employment growth above 200 thousand and the unemployment rate below 6% should be well received by the market, which is looking more and more through the prism of the fundamentals.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

Slowly and consistently WIG20 begins to materialize growth scenario, although there is still a lot of threats to its continuation. Last week the WIG20 scored the third consecutive week growth, posting a 1.5% uplift. What is more important, the resistance level at 2,450 points was exceeded. A very important level from the technical point of view. In addition, the RSI oscillator is in an uptrend, and still has a lot of space to the overbought level. Therefore, the baseline scenario is an attack on the zone of 2500-2550 points, while the threat to its implementation is a drop below 2450 points.

Graph 2. LPP daily. Source: Stooq

Anticipating a potential upside breakout from consolidation on the LPP values we choose this stock as a company of the week. In the past week it has gained 3.6%, mainly due to the last two sessions. Closing the week at 10049 PLN is not the highest in history, but it is very close to the record. The highest intraday level is 10149 PLN and we are looking forward to an attempt of a breakthrough. If this is successful a reliable buy signal for determining the company's new historical records must be convincing (ie. upward move should be strong) then trend is entering a new phase, and we can even predict the levels above 12,000 PLN.

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

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