Thursday, November 29, 2012

EUA Dec12: Santa brings just a storybook


The European Commission announced the 29th of November, after the market closed that there would be no vote about the backloading proposal of 900 million allowances from Phase 3 auctions on the meeting of the Climate Change Committee on the 13th of December. The Commission only asked the Member States to indicate their positions on the draft amendment of the Auctioning Regulation.

The European Parliament and Council should first amend the ETS Directive giving the Commission the legal right to amend the Auctioning Regulation. Member States will vote on the backloading only once this legislative process is concluded and this decision goes for three months scrutiny to the Parliament and the Council as well. 

The announcement reduces the chances of the backloading being adopted any time soon to zero (Bloomberg New Energy Finances sees the earliest possible date of the adoption November 2013) and pushes prices lower on the slope.

The doji candle on Tuesday indicated some hesitation of the EUA Dec12, but the price found its direction Wednesday afternoon. After hitting the daily high at EUR 6.84 in the morning the price moved downwards the whole day long on Thursday. The declining trend accelerated (with a huge volume) in the last 30 minutes of the trading and the price closed just 3 cents above the daily low of EUR 6.55. 




The mid-term technical picture didn't change a lot. The MACD is in the negative territory and the Relative Strength Index (RSI) is near oversold territory at 33.1. The EUA Dec12 is still in the range of EUR 6.45-7.17 we got used to in the second half of November. 



Now it seems, however, more likely that it will break the range downwards. The 20 days moving average crossed its 200 days moving average yesterday from above.



The first support level is at EUR 6.45, but there is a chance to visit the all time low of EUR 5.99 again. I'm still searching for reasons that could help the price testing resistance levels again.

Monday, November 12, 2012

EUA Dec12: Optimism about back-loading over-weighing at the moment


The price of the EUA Dec12 reached the upper level of the ascending triangle we wrote about in our last entry.

It is interesting to observe the momentum bulls gained on the market considering last week’s performance: Last Monday we saw a hanging man formation (short body with a little upper shadow) followed by a bearish engulfing on Wednesday. In the second half of the week the price moved sideways.

Today, however, the price managed to break the level at EUR 8.50 that served as a resistance for a long time. We had an intraday high at EUR 8.73 today (and market didn't close yet!), a level not seen since March. It seems that market participants are speculating on a positive message of the reports to be published this Wednesday. The European Commission is expected to issue three reports the 14th of November:

a. A suggestion for a number of allowances to be withheld from Phase 3 auctions and loaded back by the end of Phase 3 (2016 or 2018).
b. An impact assessment of the back-loading.
c. A summary report on the functioning of the EU ETS called Carbon Market Report (CMR) that will contain long-term measures to tackle the massive oversupply of the scheme.

It is important to mention that the documents will show the engagement of the Commission to solve the problem of the oversupply, but they don’t imply immediate action. The proposal has to be approved by the Climate Change Committee that is not expected to happen before the 13th of December and the law goes than to the European Parliament for three months scrutiny. This means that any change might be implemented in 2Q2013 as the earliest.

Market might repeat the same pattern we saw in February, before the ITRE vote happened and in July before the back-loading proposal had been published: Speculators push up prices and after the decision/publication they decide to realize the profit and put it into their pockets.

After breaking the EUR 8.50 the next strong resistance level can be found at EUR 9.63.

In the opposite direction the most important support levels are at EUR 8.50, EUR 8.00 and EUR 7.50.
MACD is suggesting further price appreciation, RSI at 66.9, near overbought territory.



Thursday, October 25, 2012

Ascending triangle, 7.50 support tested


Carbon price is moving sideways for a long time now, narrowing the gap between highs and lows, forming some kind of an ascending triangle pattern. Still it faces strong resistance @ around 8.50 levels, which was attacked already 3 times since June.

Today we shall see a support of 7.50 euro to be tested. If it is held, we could the price appreciating again to break short term DMAs, which meet very close to each other @ around 7.80 euro


Fundamentally, the upcoming auctions of EUAs Phase III could also significantly influence the development of the carbon price.

Monday, October 8, 2012

Hanging man didn’t scare EUAs away from EUR 8 level


Thanks to the uncertainty related to the plans of back-loading allowances from Phase 3 auction the EUA Dec12 showed an increased volatility since the end of August.  Intraday swings of 50 cents are more and more frequent. In the last two weeks it moved in a range between EUR 7.50 and EUR 8.11, but it couldn't break out in either direction. The MACD curve became a straight line and the relative strength index (RSI) is in the neutral territory at 55 points since early September.

On the 1th of October a hanging man formation could be seen on the chart of the benchmark product indicating depreciation. The price fell until the 200 DMA at EUR 7.50 that worked as strong support and helped the EUA Dec12 to recover and the price tested the resistance at EUR 8 again. Last week’s appealing German dark spreads were also supporting the recovery.

Without important announcements or developments related to the back-loading the EUA Dec12 might trade in the range mentioned above (EUR 7.50-8.00) this week as well.

In a positive scenario (for example strong commitment to speed up the legal process of the back-loading approval) the price might reach EUR 8.50 as the EUR 8.11 is only a weak resistance level.

News about further delays, however, might push the price further downwards. The first support level below the 200DMA is at EUR 7.16.


Tuesday, September 18, 2012

Can the CCC bring relief for carbon?


As expected, September started with an increased volatility, but until now the dark candles had a bigger body than the white ones. 

End of last week was very week in the carbon market and this week didn’t start strong either. The price of the EUA Dec12 contract fell below the 200-days moving average and couldn’t recover. In addition the MACD that gave a sell signal in the beginning of last week today fell below zero. Another bearish sign. 

The increasing trend channel started after the European Commission published its draft about back-loading was broken last week and the price heads south since then. Couple of news drew market participants’ attention (again) on the increasing supply by the end of the year (early phase 3 auctions, NER sales etc.). Expected transfer delays thanks to the software update of the union registry brought further sellers to the market.

Everything indicates further depreciation at the moment. The RSI is currently at 38.5, so there is some room left to the downside. The closest support level is at around EUR 7.0 followed by EUR 6.53 (a local low from end of July). The lower Bollinger band is at EUR 7.11 and the EUR 7.0 worked as a good support in the first weeks of August.



Although no decision is expected from the Climate Change Committee’s (CCC) 60th session tomorrow, positive comments might bring some relief for the prices. (Negative comments could cause further decline, of course.) Reaching the lower Bollinger band might also be a support.
In the case of a correction, the earlier support levels will function as resistance. These are at EUR 7.53 (200DMA), EUR 7.80 (30DMA) and EUR 8.0 (20DMA and psychological level).





Monday, September 10, 2012

EUA might change direction 27 times in the coming days (at least)



We had an exciting day today with the EUA Dec12 moving in an unusual wide range of EUR 7.80-8.50. After the significant price appreciation last week we expected some kind of correction in the morning (stock futures and depreciating euro indicated also a way downwards), but I don’t think anybody calculated with this extent of fall.
There were two pieces of news putting a downward pressure on the price:

- The European Commission (EC) announced having selected the German EEX for its early Phase 3 auctions. All in all 120mn allowances will be sold from last week of October. The only new information I the announcement was the platform, as the amount was known already months ago. The bigger than expected negative reaction shows how nervous markets are.
- In the afternoon Netherlands’ Infrastructure and Environment Ministry said it is unlikely to support the EC’s back-loading proposal as it would be an indirect disadvantage for the countries’ companies (meaning higher costs).

Although Netherlands has only 13 votes in the Commission and at least 91 votes are needed to block the back-loading proposal, the announcement was awarded with a 30 cents fall. This might be an indication on what’s coming in the next days /weeks. Any time a country says its opinion about the proposal, the price can move up or down depending if the country backs or opposes the back-loading.

With today’s move the EUA Dec12 price fell below the 20-days moving average at EUR 7.97 (IRSI fell to 31). If the price cannot return above EUR 8 today, a bearish engulfing would form in the chart (reinforced by a higher than average volume traded today) indicating further depreciation. In this case the support levels would be the 30-days moving average at EUR 7.70 and a local low at EUR 7.55 (the 200-days moving average is here as well). If all these supports prove inefficient, the price can fall to EUR 6.50.

In a positive scenario the price has to climb back above EUR 8.0 first and then the first resistance is waiting at EUR 8.50. The price tried to break above this level already three times.

We have to be prepared for everything, mainly for direction changes…





Tuesday, September 4, 2012

EUA continues to rise - two signals to go long


After rebouncing from a support at recent low of ~7.55 (double bottom) price quickly appreciated. We had one buying signal on the break out from 7.80 and the other @ 8.20 - although on the second one we did not add to the long position - despite the high volume on that candle (see chart below) becasue it is again very close to most recent high 8.46 which could not be broken last time.

Shoudl the price test the breakout from 8.20, you may consider adding to the long. Otherwise if it corrects to reach level of 8.10 we would exit the position with some profit.


Thursday, August 30, 2012

Carbon felt on overbought market - finding new support


As the news emerged that Australia will link its ETS with the European one, there was a buying spree on the carbon market - which might have coincided as well with bulls attacking the most recent high of 8.48 from the end of June. But as it turned out that expected demand for EUAs from Australian market will be marginal - not enough to save the EU ETS from its supply, the bears stepped in to halt the rally.

The shooting star initiated a decline in the EUA Dec12 yesterday. The price fell to the 61.8% Fibonacci retracement level and this was the first time it fell from the increasing trend channel. Open interest decreased from 0.375mn to 0.374mn, but the RSI is in neutral territory at 52.3. Perhaps even more than the bears selling at the high, it was those who were buying carbon all the way up that started to realize their profits and selling their length.



We are down some 76c in two days (~ -9%) at 7.71/7.75 and perhaps at a crucial support/resistance. This level is a Fibo and also you can see here many DMA are crossing. We have support from 200 DMA. 45 DMA and 20 DMA. Given the fact that also power prices went marginally down, this can be again an interesting level for utilities to buy some carbon they need.


Technically, yesterday we saw two selling signals (in red) - please compare to the buying signals (in blue) during the increasing trend.

Friday, August 24, 2012

Time for a correction


Time for a correction


Global markets give a bearish sign today.
Asian markets and European futures are in the negative territory, US futures close to zero and the dollar is appreciating.
The Brent was some 50 cents lower than yesterday’s closing price early in the morning. And the USD is appreciating 0.3% versus the EUR.

Markets went up quite a lot this week, investors, therefore might decide for profit taking on the last trading day of the week.
In addition, yesterday’s data signaled that the jobs market and consumer confidence remain weak in the US.  Jobless claims rose by 4,000 for a second week to reach 372,000 in the period ended Aug. 18, Labor Department figures showed. Consumer confidence dropped last week to the lowest level since January.

German Chancellor Angela Merkel and French President Francois Hollande will meet with Greece’s prime minister today and tomorrow to discuss the pace of reform.

At the same time, the EUA Dec12 is in an increasing trend.
The Relative Strength Index is at 67.5, so there is still room for some appreciation before it reaches the overbought territory.
Open interest increased day by day and is now above average.
The MACD is above zero and the 20-day moving average got above the 30-day moving average two days before which is a bullish sign as well.
Next resistance before the EUA Dec12 is the local high at EUR 8.48 hit on 29 June.

The price appreciation, however, got even faster in the last days, the price broke out from the trend channel. The price started a correction already today in the morning, as it opened 1.7% lower than yesterday's closing price.
The first support level can be found at EUR 8.0-8.02, the next at EUR  7.75-7.80.




Friday, August 17, 2012


There is always a reason to party


We expected a rather quiet week, and were surprised by the market activity. Until yesterday’s close the benchmark EUA Dec12 contract appreciated 7.5% from last Friday. The first two weeks of August show an increasing trend channel. The MACD gave a buy signal 6 August already and reached the positive territory this Wednesday. The Relative Strength Index (RSI) that on the last day of July was at 30.6, is now at 60.49, but there is still room enough for further appreciation.

In the lack of regulatory news global market environment is influencing the carbon prices. In the beginning of the week oil prices were supporting carbon as Brent oil went above USD 115 due to a drop in output in the North Sea, supply worries in the Gulf of Mexico and a decline in US crude oil inventories. In addition, European power prices went up partly because of problems at a Belgian nuclear power plant.

After a correction on Wednesday the market got new impetus from German Chancellor Angela Merkel yesterday saying that her government would support ECB President Mario Draghi in saving the life of the Euro.

The EUA Dec12 managed to come over the 30-days moving average (at EUR 7.30), and yesterday it went over the 200-days moving average (at EUR 7.70) as well, but here a fight seems have started. The price tried to break this level on Tuesday and Wednesdays already and today it’s testing it back. This can be a natural step given the fact that on Friday market participants might close their open positions and after the price appreciation of the last couple of days some of the traders might put the profit into pocket.

EUR 7.70 (the 200-days moving average) and EUR 7.50 (a support level marked by the opening and closing prices of the last days) might support the prices in a correction. Should the positive trend continue (most likely next week), EUR 8.00 will be the first resistance to combat. This a Fibonacci and a psychological level as well.


Friday, August 10, 2012

Too strong resistance

Carbon failed to break above the resistances created by the DMAs (check our previous Carbon post) and effectively fell below 7.20 euro which seems at the moment to be an important support-resistance. We are now faced with a rather psychological 7.00 euro barrier - there is nothing really that should keep EUA here other than traders perspective of a round number being a good support. Next levels can be 6.85 euro and 6.53 euro.


Tuesday, August 7, 2012

Risk-on and inventories down? Buy oil!



As the risk-on mood across the markets continues and speculators betting that crude oil inventories might have decreased by further 1.5mn barrels after they fell more than 6.5mn barrels last week (data will be released tomorrow) oil advances well above 108.40 (50 Fibonacci level) and this convinced us to go long. We bought into the market just above 110.00 USD and we set the Profit Target at the next Fibo level of 113.19 USD


Where is "the thing"


The emissions market is calm recently as the holiday season kicked in in most parts of the EU and beyond. Generally the markets were in a risk-on mood after Germany signalled that the country would support the ECB’s bond buying programme announced last week. This programme could decrease the financing costs of countries like Spain and Italy.

As the auction schedule debate will only start in autumn, traders' attention is now drawn to any short- to mid-term imbalance in supply and demand and seeking direction from oil, gas, power prices and macroeconomic development in the EU.

Looking from a wider perspective, we haven't seen a new low since 5.99 euro was hit at the break of March and April. Carbon is trading sideways inbetween 6.70 and 7.40 euro - and this is not the level of prices at which power companies would spend extra time and effort to closely follow the market and execute complex hedging strategies.


Ahead of us certain technical obstacles which may prevent the price from further appreciation - I mean the 20 Day Moving Average (DMA) which is now being tested, 45 DMA, 30 DMA and 200 DMA.

Tuesday, July 31, 2012

Wake me up when September ends


Yesterday the DEC12 EUA price fell 5.6 % and hit a 7-week low. In the early afternoon the units were traded at 6.53 euro. Prices may follow this trend for the rest of the summer as the European Commission will only start to debate on the amount of the units that should be temporary withdrawn from the scheme as of September.

Since (1) in September the EC will only start the debate and the figures [number of units to be withheld] most likely will not emerge until the end of the year,(2) having in mind the still difficult macroeconomic situation, (3) governmental and EIB auctions of EUAs, (4) increased flow of CERs and ERUs into EU ETS, we do not expect the price to rise significantly this year.


 As the chart above shows, yesterday the high volume was on the red candles meaning the traders were either pushing the price down, adding to the momentum or/and certain Stop-Loss orders kicked in at different levels starting from 6.85 down to 6.50. Last candle shows most likely a short covering action at the end of the session, again with high volume - a little bit of optimism during the bearish session.

This morning the prices struggle to start a correction.

Thursday, July 26, 2012


EUA Dec12: Commission didn’t help price to break decreasing trend



On July 25 the European Commission published its long-awaited document containing the legal clarification of the back-loading and planned changes to the auction regulation, although without firm figures.


All in all, the documents testified the strong commitment of the Commission towards reforming the EU ETS, but they couldn’t disperse uncertainties regarding exact figures and timing of such measures.


Before the announcement couple of market participants speculated on a positive outcome, helping the price reach EUR 7.44 before the official publication of the documents. After 1200 CEST, however we could see something which is known in trading jargon as “buy the rumour and sell the news”. The EUA Dec12 price fell to EUR 6.75 and could recover just slightly in the afternoon.


From the technical point of view, the price started to decline already end of July (after hitting EUR 8.48) when some market participants first came out with concerns regarding planned modifications of the auctioning regulation. (It could be seen that the plan not only faces criticism from industrial lobby groups, but there is no consensus within the Commission either.) The MACD gave a sell-sign on 9 July.


Despite the positive opening yesterday the price couldn’t break the negative trend and the price approached the local low at EUR 6.67. The doji candle from the 24 July was followed by a candle showing a bearish engulfing yesterday (accompanied by a significant volume).


The 20-days moving average went below the 30-days moving average, giving a further sign for further decline to come. 


In today’s trading this level was broken as well. The next support is at EUR 6.17, a local low from 1 June. 


We don’t expect any support from the regulatory side as decision makers are on summer holiday. Only positive news about the Eurozone and the macro economy might offer some kind of support for the price in the coming weeks.


Monday, July 23, 2012

Carbon sideways, below 7.00 euro


Last week the price of EUAs tumbled down from 7.50 (what seemed to be a good support, at least psychological) down to 6.70, following the rather disappointing news on re-scheduling of the EUA auctions [read our previous Carbon post]. On Friday afternoon it climbed back above 7.00 mark following a short covering buying.


It also turned out on Friday, that apparently the EC will propose a timing of when the emission allowances will be auctioned, which can be read as "the number of units to be held back from early auctions will be known or can be derived from the published documents". It could be supportive, but then along came Greece and IMF where rumour says (unofficially) that the next bailout payment tranche can be suspended if it turns out that the Greeks are not making enough progress in the austerity measures they are committed to. EURUSD fell out of bed (falling to lowest since June 2010), Brent and stock market went down and the EUA is traded -3.8% lower as well.

Given the sensitivity of the information which is to be published on Wednesday, we don’t expect significant movements on the market before that time. Also the less clear the communication will be, the more different interpretations of the news by the traders and more volatile the market will be. Echoing most recent analysis, any quantity of allowances to be withheld or which sale will be postponed, which is lower than 1bn, should have a bearish reaction on the market [although short- to midterm volatility is expected as we wrote above]

Friday, July 20, 2012

Trade ideas for next week


Nike Inc. performed well and we still keep our long position however we tightened the Stop-Loss to USD 93, so if something goes wrong we are out with a profit.

Ross Stores Inc. was closed already and Tesco Corp. can still receive support from 30 day Moving Average.

We shorted Deutsche Bank again, let’s see where it goes (below 25.00 again?) after LIBOR and layoff news.

We also went long Tiffany & Co. given the recent strong performance.

We are quite reluctant to open anything new ahead of the weekend, but these are the shares to watch and trade next week.

Peugeot S.A.




Broke down from a bearish trend is never good sign. It did pick up reasonably well, but lacked the momentum to climb further. Opportunity for short next week.

General Motors Co.




Most analysts agreed a BUY recommendation on this company with a target price of 31.33. Double bottom formation should give positive signals but the bearish trend is yet to be broken. So far only the 20 day Moving Average gave support. Definately interesting stock as it could go anywhere from here and will most likely be influenced by the macroeconomic mood.

Intel Corp.




After amazing run we saw a correction in part forced by profit taking and in part due to the share still being in declining move. Breaking and staying above 200 day Moving Average gives optimism. Shall it break out from the trend, the 29+ USD is possible again. Risk to the downside below 25.00

Thursday, July 19, 2012


Surfing on oil


On 17 June, the 20-days moving average went above the 30-days moving average in Brent which was a buying signal for us. We opened a long position at USD 104 with a target price of USD 109 (the 200-days moving average is here) and an initial stop-loss at USD 101. Better than expected housing data from the US and hopes for further monetary easing from China and the Fed helped the price further. We adjusted therefore our stop-loss to USD 105.85.



EUA: Disillusioned due to regulatory news


Although the EUA Dec 12 was in a declining trend already since it reached a local high at EUR 8.48 on 29 June (MACD gave a sell signal 9 July already), the downward movement accelerated when Reuters came out with regulatory news on Tuesday, 17 July.


According to “well-placed sources from Brussels” the EC report to be published 25 July will not contain the exact measures how the EC plans to modify the auction regulation in order to cut the supply of allowances. 


The Commission is now expected to publish only a clarification of the legal basis of an intervention.
Although market has to wait until next week to get a clear picture, the leaked information had a bearish effect on the prices as it suggests that it might take months until the final decision is reached. A note from the International Emissions Trading Association said that it “could be a six-month process” for the EU to intervene in the scheme. 


With a significant volume of 28.1mn the EUA Dec12 fell to EUR 6.80 yesterday and it continued the trend until EUR 6.68 today. 


If the trend continues, the price can easily reach EUR 6.17, a local low from early June. 7.00 was only a psychological level, where buyers stepped in last night. Below this, already the 6.80 gave up the ground and with this high volatility and without any support it can fall even below the historical low of EUR 5.99.
It seems now that the fact that the Relative Strength Index (RSI) is at 31.3 (signalling oversold market) and that Brent is above USD 106 don’t bother market participants at the moment.











Tuesday, July 17, 2012

Update on positions in stocks


Deutsche Bank

Deutsche Bank was a money maker for our shorts as recently it dropped down to around 25.20). We continued to short this stock at different levels to finally close it @ 25.69 end of last week (a bit too early) but we are monitoring it continuously.

Nike Inc.


Ahead of London Olympic Games 2012 we opened long position in Nike expecting it to close the gap seen on the daily chart. Shall it find the support @ 93.00 the odds are on our side.

Ross Stores Inc.


Recent strong performance by this stock (a chain of American off-price department stores) - especially very good recovery, climbing back above the 20, 30 and 200 day moving averages [see chart] and attacking the all-time high made us open a cautious long position here.

Tesco Corp.


Similarly to Ross Stores, we considered Tesco shares as an attractive investment. Recovering above 20 and 30 day moving averages and being far from 200 day moving average - which capped the share price here for nearly one year with exceptional peaks - makes the risk/return ratio rather attractive.

Monday, July 16, 2012


EUA waiting for regulatory news


After the rally seen in June the EUA Dec12 retreated in the last couple of days. 

Market participants are waiting for the report from the EC on the status of the EU ETS that is supposed to contain suggestions for improvement of the scheme (back-loading, set-aside etc.). On 29 June, the benchmark contract  managed to reach EUR 8.48 and to break above the 200-days moving average, something we didn't see since the beginning of 2011. Hopes on news from the regulatory side of the carbon market were completed by announcements of the EU summit. The measures approved June 29 have the aim to facilitate recovery of the PIIGS countries without increasing the debt of them.

By the end of June the Relative Strength Index (RSI) of the EUA Dec12 stood at 74-75. A level above 70 shows that the asset is overbought. News about a possible postponement of the publication of the long-awaited report and opposition from certain member states against the EU package which could help indebted countries pushed the EUA Dec12 price below the 200-days moving average again and a decreasing trend started (red line). The MACD gave a sell signal 9 July. Last Friday, the price fell to EUR 7.46, slightly below the 30-days moving average, but by the end of the day it managed to close above this level, at EUR 7.65.

The Commission is working until 25 July. This is therefore the last day when the report might be published. 

At around EUR 7.60 we can find several technical levels, which might make it as a strong support. The 30-days moving average (green curve) is at EUR 7.57 and the 38.2% Fibonacci retracement level is at EUR 7.60. It was a strong resistance level earlier as well (yellow horizontal line). 

If this level breaks, the price has to fall through the 50.0% Fibonacci level at EUR 7.32 and might easily reach EUR 7.0-7.05. In a positive scenario (macro data showing economy to recover, comments from the European Commission), the price might bounce back to the 200-days moving average which is now at EUR 8.10 (yellow curve).





Monday, July 9, 2012

Chocolate fans go long in sugar



On 5 July we opened a long position in sugar (Bloomberg ticker: SB1 Comdty, traded in New York) as we discovered a seasonality in the commodity. It seems that producers start to buy the base material for their products (candies, chocolates, biscuits) in summer already. We opened the long position at USD 22.46 and our first price target is USD 23.53. The 200-days moving average is here and on the mid-run the price didn’t manage to overcome this resistance level.



Deutsche Bank

We decided to go short in Deutsche Bank on 6 July, after the 20- and 30-days moving averages failed to maintain the price. Actually, the 20-days moving average fell below its 30-days peer which is a bearish signal as well. The MACD is also approaching the signal line reinforcing our bearish view on the stock. We first realized profit at EUR 27.09 and our next target price is at EUR 26.70.



BASF

Supported by the bearish market mood we opened 5 July a short position in BASF as well at EUR 56.70 as the German chemicals company turned down from the 200-days moving average. On 6 July, we decided to sell even more (at EUR 56.14), but today it found support by the 30-days moving average. We decided to take our profit at EUR 55.80.


Waiting for the EC report on EU ETS


Carbon prices ended last week just above 8.00 euro mark as lack of buying in the late afternoon forced people to close their long positions and sell into the falling market. High volume on the long red candle towards the close of the market confirms the forced selling (some StopLoss / ProfitTake order could have been activated).


 The UK auction from last Thursday (4.18x oversubscribed with clearing price of 8.12 - whereas spot market was few cents higher at that time) didnt create much of a selling pressure as traders on Thursday still anticipated (hoped for) further gains in the carbon prices. But as the EURUSD continued to weaken as the weekend approached and oil prices came down below 100 USD/barrel mark - traders closed their lenghts and carbon was set to finish lower. 

This shows the following: The only supporting factor for the carbon price might be the regulatory side, the expected EC report containing reform suggestions regarding the EU ETS. In the last couple of weeks, however, carbon showed a more significant correlation with the macro environment (the oil and the EURUSD mentioned above). Global economic worries are depressing prices. Market seems to believe less in the effectiveness of the agreed measures by the different central banks (ECB, BoE etc.). For this reason the following events have to be watched:

- This week EIB should published their report on June NER300 sales
- Also we have few economic data coming out this week from France, Germany and Italy
- Today From 14:30 -16:30 CET Mario Draghi, President of the ECB, speaks in front of the Committee on Economic and Monetary Affairs (ECON) of the European Parliament, and again on Thursday
- On Tuesday there is the ECOFIN (EU Finance Ministers) meeting,

The carbon may react to the mood of the news coming out from the above publications.

Regarding the EC report we do not expect any further comments until publication as the information is market sensitive. The 8.00 euro level might offer a good (mainly psychological) support for the carbon price, if negative mood prevails. In the case, this support breaks, the price can easily fall to 7.80 euro (a Fibonacci level and the 20-days moving average are waiting here).



Tuesday, July 3, 2012

Carbon to trade sideways ?

Carbon is trading comfortably above 8 euro on Dec12 Futures for some time now, with a spike and most recent high nearly @ 8.50 on Friday (most likely short covering and "window dressing" before the Q2 and H1 close).

This morning we see some strength in carbon, after yesterday it gave up 2% of its value possibly due to some profit realization. It attempts to break or bounce off 8.25 euro - what I see as an important Fibo level (61.80 - please compare with chart). In addition, the 200-days moving average is also here as a resistance level.




Shall it break higher it can test the most recent high of 8.48 euro, but there can be no stopping it from reaching 8.80ish in the mid term.


Without further incentives from the carbon market (for example comments from EC about modification plans of auction regulation or negative stance of European countries regarding the European Stability Mechanism or ESM) the possibility to the downside is to test 8.00 euro support and eventually trade in a 8.00-8.25 channel.

Friday, June 29, 2012


Barclays Plc. 

On 28 June, we opened a short position in Barclays after news came out that the bank was fined for around USD 452mn for attempted manipulation and false reporting relating to two global benchmark interest rates. So we opened a short position at GBP 189.60 and we bought back on the same day at GBP 169.

(see chart at entry from 28 June)

Henkel

We opened a position at EUR 51.4 on Wednesday, because EUR 50 might function as a support level. Our target price is EUR 53.2, a former local high.


Heineken

As festival season is approaching (and we expect the 200-days moving average to be a strong support for the price) we decided to go long in Heineken on 21 June and opened a position at EUR 32.55. EUR 34.0 can be the point where we take profit into pocket.


Bank of America

The decisions of the EU summit gave some positive impetus to all the stocks, but financials managed to profit most from it. We decided to open a long position in Bank of America at USD 7.98. Our target price is USD 8.20.



Colgate-Palmolive

We went long in Colgate-Palmolive at USD 102.74 on 29 June. USD 102 was an important resistance level. It tested it three times already until it finally broke it through and hit a new historic high. We would consider closing the position at around USD 106.



Thursday, June 28, 2012

Close positions in banks - short Barclays


Close positions in banks - short Barclays

Barclays PLC.

Previously long in Barclays PLC we closed it once it reversed from 200.00 [see chart below]. We are now short from 189.60, since it broke the short trend and Head-and-Shoulder can be visible from most recent price formation.



Citigroup Inc.

Similarly to Barclays, we closed Citi just below 28.00 once it broke that level, but we didn’t short this one as it received support @ 26.50. Definitely stock to watch (again), since it is already -1.5% (40cents) below its previous close in the pre-open trade.


Monday, June 25, 2012


EUA Dec12: Correction ahead?

The EUA Dec12 reached EUR 8.20 on Friday and EUR 8.29 today. The question is if the rally can persist in the coming days or not.

The leaked document about the EC possibly setting aside some 1.2bn allowances from Phase 3 auctions gave a positive impetus to carbon prices which came first above the EUR 7.67 and then above the EUR 7.82 technical levels. 

Hitting these levels activated stop-losses and the price went easily above EUR 8. (This means that market participants who expected prices to fall and opened short positions earlier saw the stop-losses of their positions activated and had to purchase allowances.) Additionally, on Friday afternoon the European Central Bank (ECB) reduced its collateral requirement for its asset backed loans. This way it will be easier for European banks to get financing from the ECB and they might be more willing to grant loans to corporates. At the time of the announcement markets switched to risk-on mood that helped the carbon to go above EUR 8.20. 
Today in the morning, however, market started to realize profits and the price decrease to EUR 7.82. This is absolutely normal as the carbon became strongly overbought. (Relative Strength Index was at 77.9 and the price left the upper Bollinger band.)

Couple of things support or opinion on a price decrease:
  • Last Thursday a German law office said that the modification of the auction regulation might breach the European law. The expertise was paid by a lobby group; therefore it hadn’t have any price effect. On Friday, however, three departments of the European Commission (the directorates for industry, transport and economic and financial affairs) voiced concerns about the modification as well. The objections voiced by the three departments include concerns about the impact of the regulation on the predictability of the EU emissions trading system, or ETS, a lack of a full impact assessment, and questions over the legality of postponing auctions.
  • Barclays slashed its EUA price forecast for Phase 3 by 50% to EUR 8 in its carbon market report on Friday. The analysts also said that without an EC intervention the price might average at around EUR in the 2013-2020 period.


On the other hand there are some fundamental aspects providing support to the price:
  • Oil prices increase today in the morning as tropical storm Debby made oil producers in the Gulf of Mexico to reduce their production by 8% and Norwegian production was reduced due to strikes of employees pressing for higher wages and pensions.
  • The weather forecast for this week indicates lower temperatures for the continent. 


These supportive factors might help the EUA Dec12 to reach EUR 8.37 where the 200-days moving average awaits it building a strong resistance there, but we see higher probability for a downwards correction. In this case the earlier resistance at EUR 7.67 might be a support now. (Before that we can see a 23.6% Fibonacci retracement at EUR 7.79.)


EUR/USD might reach 1.229 again

Last Thursday’s candle in the EUR/USD reinforces our view that on the mid-run it is safer to bet for the dollar which took the way to the South again. Last week the 20-days moving average was the only support left to break through, which happened definitely today. The EUR/USD might reach the local low of 1.229 again. (If you consider opening a position, the stop-loss might be put at 1.271.)

Last Wednesday the two days meeting of the US Federal Department (Fed) ended. The Fed announced that it would expand its program of buying long bonds called Operation Twist until the end of the year. (The original program would expire by the end of this month.) The program is financed with selling short bonds. This was the Fed will provide USD 267bn liquidity for the market. Market, however, was expecting a more aggressive effort from the Fed. They were hoping for a next round of Quantitative Easing (QE3). Fed chairman Ben Bernanke said that they would be ready to step in if worsening macro conditions made further intervention necessary, but no specifics were given. (If so, this would of course weaken the USD.)

On the other hand, the euro zone is still struggling with the same problems than months ago. The result of the Greek elections solved only a political risk, but the country’s economy needs further steps. Greece would like to renegotiate the bailout package (getting some two years of grace period for decreasing its debt), but Germany doesn’t seem to be willing to accept it. Greek PM and finance minister have health problems, the visit of the Troika (EU, ECB and IMF) had to be delayed and they are not able to participate in EU meetings from 28 June which have the aim to talk about the situation of the euro zone peripheral countries. Meanwhile Italy and Spain are preparing for bond auctions the result of which might be an indication of market confidence.


Thursday, June 21, 2012

Stocks to watch - follow up


Stocks to watch - follow up

Barclays PLC.


Indeed after few sessions of sideways moves, Barclays finally broke up and trading now above 200.00 (with intraday highs or around 208).
We are long from 195.00, which is the upper horizontal support line, once it broke above the "correcting trend".

Citigroup Inc.


Price went back above the trend line. We are long from 27.76, when it retested the break above 27.00 support line.

Wednesday, June 20, 2012

Fundamental change (?)


Many things have changed since 11 June. Carbon broke and managed to stay above 7 euro for a long time, which may suggest fundamental change as this can signal breakout from the bearish trend which started last year in May [compare with chart below].



There are several reasons for the recent strength:
1. Since April we see strong support @ 6.00 euro and 6.40 euro - traders and utilities see value there,
2. Carbon broke thru some crucial resistance levels @ 7.02 euro, @ 7.24 euro, however is was stopped by recent high from beginning of May @ around 7.63 euro, [see below]



3. Leaked information of possible withhold of up to 1.2 bn units creates the long awaited shift in supply-demand balance (shorting the market), and some traders may see upside risk for the price, hence they go long supporting the price,
4. Quite a lot of June Call options with SP @ 7.00 euro were traded (currently in the money, with underlying Dec12 price @ 7.45), which expires today, could have supported the rally as seller covering their options positions were on the buy-side,

All in all, it suggest, what we believe, a significant change in how people see the future market development, it still may turn out that the expectations will not be met and the joy will be short-lived. At the moment in middle- to long-term perspective we see the risk to the upside.


In short term - after few consecutive day of bullish run and consolidation carbon found a resistance around 7.65 euro, level @ which we shorted the market.

Monday, June 11, 2012

Carbon rallies on Spanish banks bailout and Stop-Loss orders


Carbon rallies on Spanish banks bailout and Stop-Loss orders

Wider financial markets rose today in the morning following the news that Spain is seeking for a 100 bn euro bailout for its banking sector. Carbon - seen as a risky investment - also received some of this "positive wind" and rose by more than 2% in the first minutes of trading. Stop-Loss orders (short covering, but also buying into the rally) could have played a significant part as well.


Since the decline started in February [see chart above] (peaking above 9.60), we had few attempts to break out from this trend (end of April ~ 7.65; end of May ~ 7.05) and now we can see yet another attempt.


Carbon will most likely want to retest the breakout from 6.70. Should the positive mood prevail, we see carbon prices being supported @ 6.63 euro with further attempt to break and remain above 6.83, possibly target 7.00+ again.