The Further Movement of Crobex Depends on Signals from Global Markets

At the beginning of last week, the leading indices on the Zagreb Stock Exchange fell below psychologically important levels, but by the end of the week, they managed to return above them, and their further movement will primarily depend on signals from global markets.

The Crobex index slightly strengthened last week, by 0.13 percent, closing trading at 1,905 points. The Crobex10 rose by 0.4 percent to 1,006 points. Both indices thus returned above the psychologically important thresholds of 1,900 and 1,000 points, below which they fell for the first time since September 23 on Tuesday. Regular turnover exceeded 99 million kuna last week, nearly three times higher than the previous week, which was shortened due to the holiday.

“The domestic capital market remains in a stagnation tone, with a more sustainable trend, whether positive or negative, still not in sight. A drop in Crobex below the psychologically important level of 1,900 points could trigger a sharper correction downwards. However, everything will ultimately depend on signals from global exchanges, which will determine the further direction of movement on the domestic exchange,” says Dalibor Balgač, an analyst in the Economic Research Department of Hypo Alpe Adria Bank. The most liquid stock was HT, with nearly 32 million kuna in turnover, whose price strengthened by 0.37 percent to 272 kuna.

Significant turnover of 20.8 million kuna was also achieved with Exportdrvo shares, whose price rose by 10.16 percent to 594.84 kuna. The unusually high turnover of this stock is the result of the buyback of 35,000 of its own shares conducted by the company, which constitutes 24.3 percent of the share in the equity capital. Exportdrvo now has 45,790 of its own shares in its treasury, which constitutes 31.8 percent of the share in capital.

Among the more liquid issues, the stock of Petrokemija stands out for a price jump of more than five percent. With a turnover of 3.9 million kuna, the price of that stock reached 165 kuna. In the construction sector, most stocks recorded gains. Thus, the prices of Dalekovod, Ingra, Tehnika, Viadukt, and IGH shares increased between 0.56 and 2.68 percent, while the Hidroelektra low construction stock weakened by 2.46 percent.

In the shipping sector, however, prices mostly fell. Shares of Atlantska plovidba, Uljanik plovidba, and Tankerska plovidba decreased between 1.25 and 3.7 percent, while Jadroplov shares increased by 1.11 percent. Last week, stock prices also rose on global exchanges for the second consecutive week, thanks to investor confidence that the U.S. central bank will soon ease monetary policy, as well as good quarterly business results from companies.

On Wall Street, the Dow Jones index strengthened by 0.5 percent, while the S&P 500 rose by 0.9, and the Nasdaq index by 2.8 percent. European exchanges also experienced good sentiment. The London FTSE index strengthened by 0.81 percent, while the Frankfurt DAX rose by 3.19, and the Paris CAC by 1.70 percent. “I expect somewhat greater price volatility on global exchanges in the coming period due to the season of financial report announcements for the third quarter, which will likely determine trading for the remainder of this year. Part of that volatility will likely spill over to the domestic market,” notes Balgač.

In addition to financial reports, the direction of trading will also be influenced by the announced Fed measures for further easing of monetary policy to stimulate economic recovery. Quantitative easing of monetary policy in the U.S. has a positive impact on the markets, and solid financial reports from companies will also provide an incentive to investors, especially if the assessments for the last quarter are optimistic,” believes Balgač. The season for announcing business results of domestic companies for the third quarter is also about to begin.

“Croatian GDP for the third quarter will be somewhat better than the previous two quarters, but the question is how much positive impact it has on the domestic real sector. Namely, most of the positive impact on GDP has come from a fairly good tourist season. Given that we are not an export-oriented economy, and unemployment is high, demand remains weak, which reflects further ‘deleveraging’ in the real sector,” assesses Balgač. He adds that due to the latter, further growth in unemployment is expected, not only due to layoffs in the private sector but also in the public sector.

Technical Analysis: S&P Index Above Resistance Levels

Last week on Wall Street, the season of financial reports and the continuation of the upward trend that began in September played a major role in breaking the S&P 500 index above the resistance line imposed by long-term trend lines, emphasizes Marko Erdeljac, head of the retail desk at the investment company Erste Securities.

The S&P 500 index reached 1,176 points on Friday. The VIX index of the Chicago Options Exchange, known as the ‘fear index’, fell by 8.2 percent last week to 19.03 points. “From the movement of the VIX index last week, we can conclude that, with the broken resistance levels, there is potential for further market growth as long as the S&P remains above the former resistances, which automatically became supports after the market broke through them,” says Erdeljac. The descending trend line, which connects the highest point of the S&P at 1,576.09 points and the lowest this year at 1,219.80, has become a support line on a weekly level, so in the coming weeks it must be observed as a boundary between ‘bullish’ and ‘bearish’ market sentiment, notes Erdeljac.

“In the next week, that line will move between 1,161 and 1,157 points. Both short-term and long-term technical analysis have established a resistance zone in the range of 1,170 to 1,175 points, which has also changed its role to a support zone. As long as the S&P remains above these two resistances, stock prices have a chance to continue the upward trend,” believes Erdeljac.

On the long-term scale chart, new ‘targets’ are revealed in the case of a rising market movement – the first resistance for the S&P is at 1,195 points, where the 200-week declining moving average is located. In the case of breaking that resistance, the first resistances are only at the boundary of 1,219 points, where the highest point of the S&P this year is located, but also in the zone from 1,228 to 1,232 points, where the 61.8 percent ‘Fibonacci retracement’ of the entire decline from the highest point of the S&P in history to the lows of 2009 at 667 points is located. That point, if reached, will provide strong resistance to further positive movements of the index. A rise above that point and the continuation of bullish sentiment could result in the S&P index rising to 1,350 – 1,380 points, explains Erdeljac.

“However, we must keep in mind that every breakthrough above resistance levels often carries an attempt to test the same. Therefore, in addition to weekly movements, it will be extremely important to close on a monthly level, where a clearer signal for market movement at longer-term levels will appear. The inability to close on a monthly level above the mentioned support lines will reopen the door to a bearish scenario, where the first levels of resistance for the S&P, below those already mentioned, are at 1,150 and 1,120 points,” notes Erdeljac.

In addition to the movement of the S&P, it will be crucial to monitor the movement of the VIX index, which ended last week at 19.03 points. “In a bullish scenario, the resistance levels for the VIX next week are at 18.2, 16.9, and 15.4 points. The continued decline of the VIX gives strength to stock bulls, while any unexpected rise in the VIX gives bears the right to try their luck in attempting to bring down stock prices,” says Erdeljac.

He believes that the weakening of the dollar is also very significant, making U.S. stocks cheaper for foreign investors, and the movement of the relationship between the euro and the dollar is also something to pay attention to. Last week, the euro exchange rate ended below 1.40 dollars, at 1.3980 dollars. Any rebound of the dollar and the beginning of a decline in the euro would be a signal for a potential drop in prices on the stock market, notes Erdeljac.

“In any case, the season for announcing quarterly business results of companies is underway, and fundamental investors are eagerly awaiting each report to assess whether it is the right time to sell stocks or to repurchase. For technical analysts, price shows everything, so the next few weeks are expected with anticipation to choose a side on long-term positions in this very interesting trading on U.S. exchanges,” concludes Erdeljac. (H)

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