Summary

Last week indices at Książęca did not change much. Biggest price delta of 0.2% was noted on a declining WIG20 index. Considering significant increases of the index during recent weeks, such correction brought only a little pain to WIG20 long investors. This correction may easily transform into a deeper decline, which does not have to strike out a slowly emerging bull market on the WSE. The best performer was a fuel sector, supported by favorable macro environment. Second best were the developers (sector sub-index gained 2%). A lot of positives were said in recent months regarding this sector. Even though the index gained 10% since March, sector have good prospects and valuations are still low. Perhaps finally favoring low interest rates will be discounted by the market. On the other end banking sector looked quite bad, despite good results reported by Millennium and BZ WBK.

Last week was shorter for investors due to bank holiday on Friday. As there were not many incentives from internal market, investors relied more on what was happening abroad. In Western Europe, we had a continuation of a downward correction. The DAX and the CAC40 depreciated by 3%. On the other side of Atlantic symbolic declines were noted on Wall Street where indices remain close to historical highs. Meanwhile, weak economic data from the US was one of main macro news last week. A preliminary reading of GDP growth in the first quarter of 2015 amounted to only 0.2% against the expected 1%. These data are often reviewed and divergence can be significant. For now, the Fed speaks cautiously of a series of weaker data, wanting to wait for information from the second quarter. With FED rhetoric and assumption of improvement in the macroeconomic situation in the US, the first interest rate hike are realistic after summer holidays. However if one expect a surprise, it would be rather later than earlier that rates would be increased in US. It may be a sufficient argument to further records on Wall Street. As well as beating low consensus estimates by US companies in terms of financial results for the first quarter.

In the context of macro data and the actions of the US Federal Reserve investors should focus on the data that will be released at the end of this week. This refers to change of employment in the nonfarm and private sector in April. In March, the data turned out to be disastrous, but the market wants to treat them as an accident, which is why consensus is again counting on an increase of 200 thousand plus. In addition to readings from the US it is worth to focus on a series of European PMI indices for industry and services. A good data should support the indices, including the Warsaw Stock Exchange, where the native PMI will be an important data.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

The WIG20 ended the week with a symbolic change, a decrease of 0.2%. During the week index gained quite a lot, rising to the strong resistance level of 2,560 points, which is a maximum from September 2014. The first attempt was not successful, resulting in a correction (so far) to a limited extent. Index price still maintain in rapid growth trend, but the pace of growth rate is unlikely to be realized. Technically it is possible for correction move to end at a support of 2,476 points. This support is crucial, if (in the short term) attack on 2560 points will be repeated. Below 2,476 points there is a support level at 2370 points.

Graph 2. Grajewo daily. Source: Stooq

Grajewo was one of the best performing stocks in recent weeks. An increase of 7.7% in last week was impressive, especially since it followed the appreciation of a similar scale on a weekly basis. At one time, as price rose, turnover also grew significantly, which confirmed an increased interest in recently discounted stock (no information coming from the company). On the daily chart V formation was created. Further upward move is realized after breaking out from the flag formation. The nearest resistance is around PLN 31 and another at PLN 32.50. Reaching the first level in the current wave is possible, but with a risk of correction as a major support is far away, at PLN 27.

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

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