Monthly market commentary - January 2015
Summary of January
After December, during which investors did not see the Santa Claus rally, hope for rebound was connected with so-called the January effect. Despite more rational conditions to growth at the beginning of the year, we have received them neither in 2013 nor 2014. In contrast, January 2015 was dominated by bulls, that indicates the difficulty of empirical evidence to confirm the behavioral decision-making by the players. The WIG20 gained the least, only 1.1%. The WIG30 performed slightly better with a 1.4% increase and much better were smaller companies from the WIG40 and the sWIG80 - with 1.5% and 3.3% increase respectively. Thereby, the WIG index with 1.3% growth fell much worse than the European DAX (9.1%) and the CAC40 (7.8%), but still much better than the S&P500 (-3.1%). In January, the best performance belong to Russian MICEX with up to 18% growth.
A key determinant of such a large disparity in the European and the US markets is the attitude of central banks. The Fed will raise interest rates in a few months. The anticipated asset purchase program has been warming European investors' appetites from the beginning of the year. Mario Draghi's announcement of QE amount to 60 billion EUR a month to September 2016 resulted in significant increases on major European stock exchanges, which was not catched up by the stock exchanges on emerging markets. In this context, it is worth to note the strong data from the Polish economy. In January, retail sales in December, data from the labor market and industrial production growth turned out to be better than expected. The Warsaw indices growth in January did not reflect quite good data, which combined with the placement of liquidity surplus in developed countries may become an opportunity for bulls in February. Less profitable blue chips in relation to small and medium-sized companies are the effect of fluctuations in the banking sector. The WIG20’s significant drops started on January 15, when the SNB left the defense of minimum EUR/CHF quotations. Only this day, the largest companies fell by 3.1%, and for example the sWIG80 ended the day with only 0.8% discount. Rebound was brought by Deputy Prime Minister Piechociński’s announcement including lack of government bailout for Poles with Swiss franc loans. As a result, the index was above the line only symbolically.
The January declines on the Wall Street, in turn, result from the need to rebound substantial increases in the end of 2014 (reaching historical high at 2093.55). In the face of strong dollar, the Fed has not softened its position, that was also an argument for the supply side. The FOMC Decision ended another week of declines, confirming the horizontal trend in January.
Graph 1. WIG20 daily. Source: Stooq
The January trade on the Warsaw Stock Exchange has not changed the long term horizontal trend with the support at 48 765 points and the resistance near 55 687 points. Return to the average level of the trend and the short-term resistance at 52 585 points is a positive sign for the bulls. However, on the way to the upper limit of the trend, bulls will face several important technical barriers, which breaking can be considered as a target for the next few months. Meanwhile, we have to enjoy the retreat from testing the support at 49 321 points, which seemed to be very real in December.
Graph 2. DAX daily. Source: Stooq
A much more optimistic is technical situation on the German DAX. December, failed attacks on 10 000 points was a negative forecast for the bulls. Positive stimulus in the form of a European QE has allowed to break the range of 10 050 - 10 093 points already in mid-January. Index has slowed down at the level of 10 810 points, which is currently the historical maximum. Therefore a path to further growth is technically open, but we can not deny the possibility of rebound. A similar situation occurred in the case of the S&P500, which can be reflected for example by the overbought RSI indicator signal.
Authors: MM Prime TFI S.A. Investment Management Team
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