Summary

The FOMC meeting during which the Committee has determined the shape of the quantitative easing program and interest rates was the most important event for capital markets during last week. The QE3 was reduced by $ 10 billion, and the key phrase about keeping interest rates at low levels for a ‘considerable time’ remained in the statement. Fed’s message has been slightly sharpened by an increase of the projected interest rate and a reduction in the expected rate of unemployment. As those assumptions are quite distant in market terms, they would not complicate the current bull market. Market uncertainty has been removed. In the meantime, the weaker data from the U.S. real estate market strengthened the believe of maintaining an accommodative Fed policy. The Wall Street began a grow run on Tuesday, maintaining a good streak by the end of the week. The result is a new historical records for the DJIA and the S&P500, although we could only see a cosmetic gains versus previous peaks.

In Europe, investors also had no reasons to complain. The DAX grew by 1.5%, the CAC40 by 0.4%. The FTSE250 rose by 0.9%, pulling strongly in the second part of the week, when it became clear that the Scots voted in a referendum for remaining in the United Kingdom. The WSE also performed very well. Despite PZU dividend going ex date, the WIG20 increased by 1.7% and the WIG250 grew by 1.6%. Last week’s top investment were medium-sized companies – the WIG50 glided by 3.5%. Construction and banking sector were particularly strong, rising by 3.8 and 4.4%. Energy sector performed slightly worse. One of the exceptions was Energa. Shares of the Polish leading energy supplier surged over the week due to denial of speculations about saving mining sector by buying unprofitable mines. KGHM did not perform well due to correction on copper market.

We draw attention to the strong performance of construction companies despite the poor data on Polish industrial production and construction-assembly for August. It is assumed that the stock market discounts the future of 3-6 months in advance. Significant investments in infrastructure and the expected recovery in the sector, supported by a decline in interest rates are the main factors that attracts investors. Therefore, these companies may perform well going forward. This week we will be looking mainly to the PMI services and industry in France, Germany and the euro area, retail sales in Poland (Tuesday) and Ifo index of German (Wednesday).

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

The WIG 20 index fell well below the 2500 point barrier at the beginning of last week. This was largely due to the cut-off of a dividend of PZU. Despite this the positive climate remained on the Warsaw Stock Exchange. By the end of the week the index managed to return to the levels already close to 2560 points, which is the next resistance. Another resistance is at 2600 points, and then the peak of November 2013, at 2625 points. Positive sessions are accompanied by increasing trading volumes. You can stay optimistic as there is no large distribution on dips. The attack on the resistance of 2560 points level is possible, including the aforementioned puncture.

Graph 2. Orange daily. Source: Stooq

Orange recorded two good weeks, during which the Company's stock price has grown by over 10%. This was reflected also in a substantial improvement in the technical outlook. On the daily chart you can see upside breakout from the consolidation of several months between 9 and 11 PLN. A strong move was supported by an increase in volumes. The downward trend in the RSI oscillator, which draws the divergence bear, can be disturbing. However, the main signals, ie. price direction supported by the turnover rates, confirmed the upside breakout. Next support level is at 11 PLN. Estimating a range of upward potential based on the width of consolidation, target should be set at 13 PLN.

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

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