Summary

After successful previous week on global stock markets the time for correction has come. On the plus side, growths from the previous week have been retained. Such a momentary markets cooldown can be helpful for next growths. But we can not exclude a scenario that recent increases were only a correction within a downward trend. In that case investors should be prepared for further declines. The direction of the breakout of the consolidations made on major indices last week should be the quickest hint. Nevertheless, we can forget about higher growths until individual indices break out above September peaks. That move would create a double bottom pattern.

The inflation figures were the most important data last week. The final CPI readings confirmed a preliminary flash estimates and showed that many economies including Germany and Poland were in deflation in September. The Chinese data released last week turned out quite mixed. The country’s trade surplus increased more than economists expected, but imports in September fell 20.4% YoY. The consumer price index (CPI) also underperformed, it rose 1.6% YoY vs. 1.8% exp. Weak data may result in further People's Bank of China actions aimed at revitalizing local economy. When it comes to the major European stock markets, in the week ended 16th October the DAX increased marginally by 0.1%, France’s CAC40 did not change its value, while London's FTSE250 decreased by 1.1%. In Warsaw, the broad index WIG lost 0.6%, the WIG20 fell by 1%. As regards the small and medium-sized enterprises, the mWIG40 did not change its value compared to the closing level from previous week, and the sWIG80 was up 0.1%. The upcoming parliamentary elections in Poland may weigh on the Warsaw Stock Exchange preventing investors from buying shares.

Last week stock markets in the United States ended in green. The S&P 500 gained 0.9%, the DJIA rose 0.8%, while the NASDAQ performed the best and was up 1.2%. Regarding the macroeconomic data, retail sales disappointed edging up 0.1% MoM in September vs. 0.2% exp. The PPI slipped 1.1% YoY and also disappointed. The consumer price index (CPI) in the United States did not change in comparison to September 2014, while the core CPI increased 1.9% YoY vs. 1.8% exp. Industrial production in the United States was in line with consensus falling by 0.2% in September.

This week it is worth paying attention to retail sales and industrial production in Poland and China, as well as preliminary PMIs and the Conference Board. On Thursday, the ECB takes a decision on the interest rates, but the conference after the meeting will be more important for the markets. China’s GDP, retail sales and industrial production released Monday morning did not come as a surprise.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

Last week the WIG20 declined 1%. Together with a much lower turnover than a week earlier it was in line with a scenario of consolidation after recent rallies. A breakout of the short-term consolidation within 2,105-2,150 points range will give a short-term buy or sell signal depending on its direction. In case of an upward breakout growths should reach 2,200 points, or last September peak. If the WIG20 breaks through this resistance level, a double bottom pattern will occur and then we should be prepared for next growths. If the demand wins, the WIG20 can once again drop to the 2,200 points.

Graph 2. CI Games daily. Source: Stooq

In our opinion CI Games deserved the company of the week name. The price grew strongly for second consecutive week. Within the last 5 sessions CI Games rose 10.6%. After breaking out of the flag on 7th October the price was still going up afterwards. Bulls coped with resistance at PLN 22.48, or this year’s peak made in August. Now the level of PLN 25,09 or the peak from April 2013 is next target. Since mid-May CI Games has been growing strongly. Within last five months the share price increased more than twice. The 9-session RSI oscillator showed a divergence, which may forerun a reversal of the upward trend.

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

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