Weekly comment MM Prime TFI - June 22, 2015


Another disappointing week on the Warsaw Stock Exchange was crowned with strong declines on the triple witching day, which is the day when contracts expire, June contracts this time. During whole week the WIG index lost 1.7% mainly due to Friday session. Indices of small and medium-sized companies were dropping by about 2%. However the WIG20 declined by as much as 2.5%, but part of this drop was the result of dividends, because the WIG20, in contrast to the WIG index, is a price index, not a total return index. So it doesn’t consider dividends. We can say that the data of the Polish economy were disappointing – admittedly retail sales didn’t disappoint, but industrial production missed the consensus again. But the main reason of the WSE’s weakness was overall poor sentiment towards Europe, nonetheless the data could strengthen the decreases. Declines also dominated main European stock exchanges – the DAX dropped by 1.4% and the CAC40 dropped by 1.8%. When it comes to the Eurozone, the beginning of the week was very disappointing because investors discounted the failure of discussions between Greek government and European officials during previous weekend. Americans didn’t mind the Old Continent problems – the S&P500 increased by 0.8% and exceeded the level of 2100 points. The DJIA appreciated by 0.7% and the NASDAQ reached its new historical peak with a 1.3% increase.

A large amount of last week economic data mainly comes down to the fact that mixed data from the United States require more cautions from the FOMC members. As a result of poor first-quarter data economic growth forecast for this year was significantly reduced. The projections of interest rates also went down – we should have two increases this year, and compared with the May projection, none of the members of the FOMC sees the key interest rate above 1% at the end of 2015 (4 members did in May). Anyway, the interest rates remained unchanged. The last Federal Reserve meeting was positively received by capital markets, mostly in the US. Tightening of monetary policy in the United States is still quite distant, any changes can occur no sooner than in September. On the other hand, problems with stability of the Eurozone is a serious problem in Europe and it has an influence on the indices returns. If Greek government reaches an agreement with the EU Commission until 30 June, European indices should benefit from improvement of sentiment.

During last weekend Greece Prime Minister Alexis Tsipras held a telephone conversation with Chancellor Angela Merkel, French President Francois Hollande and EU Commission President Jean-Claude Juncker during which he intended to submit a solution. It can be debated in the EC and at extraordinary summit on Monday. If any good news come out, it can be a week of increases.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

Weeks after the presidential elections are not great for WIG20. Within last 5 trading days it lost 2.5%, reaching the area of 2300 points. Moreover an increase in turnover looks worrying. If the support at 2300 points will be defeated, the next bear’s target will be the level of 2225 points, which is this year minimum. If the WIG20 reach the level above the resistance at 2376 points, it can slightly improve bulls situation.. A strong buy signal will be generated if the index returns above 2376 points, which is an upward trend line.

Graph 2. PKN Orlen daily. Source: Stooq

Contrarily to poor performance of WIG20, PKN Orlen gained as much as 5.1%, which mainly took place at the end of last week. The share price reached its new historical peak at 71.95 PLN (beating the previous one by only 0.03 PLN). Unfortunately it was not able to maintain such a high level. On Friday, the triple witching day, there was a slight sale of Orlen’s shares. However, with such an important resistance level a bigger movement is quite natural, especially for such a liquid company as PKN. RSI oscillator still gives a lot of space for growth, the trend is also favorable. We expect that the current consolidation at 66-72 PLN will end up with an upward break towards 80 PLN.

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

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