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)


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.


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.


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.

Thursday, June 7, 2012

Go long Brent

Go long Brent

After hitting a 16 month low ( Brent found support just above 95 USD and trading now around 102 USD per barrel. Receiving support from previous low at this level, we expect Brent to appreciate to at least 107.00ish USD which is a Fibonacci level. Be careful around 105.00 USD.

Wednesday, June 6, 2012

Stocks to watch

Stocks to watch

Among many others, we have found 3 stocks (banking sector) which are worth to watch in the coming few days.

Barclays PLC.

Finding a support from the trend line, level of 190 can be interesting to watch. Shall the share break it you may want to go long - please keep in mind 190 can be tested more than once and price can bounce in between 190 and the trend until it finally breaks up or down. Looking at fundamentals, in a P/E (current market price / net earnings per share) Barclays is cheaper than its peers. This can make it more attractive in investors’ eyes. In addition, being a British bank it is not threatened to be downgraded like other EU banks.

Citigroup Inc.

Similar to Barclays - with this difference that Citi was trading already below the trend line finding support just below 25.00. 27.00 is the level to watch (20-days moving average being here). 67% of analysts covering the stock have a buy recommendation on it with a 1 year target price of USD 40.73.

Morgan Stanley

Supported @ 12.25 and further @ 13.00 can lead to further appreciation. Level to watch for breakout is just above 14.00. Morgan Stanley confessed that they are in talks with possible buyers about selling part of its commodities business. Money in is always good news.

Tuesday, June 5, 2012

SP500 - Trade Idea - go long

Remember our post on SP500 - when it was good to buy?

Well it was - but one should have dumped that long position many times already. Now we see another tempting trade in SP500. Go long now @ 1270/1275 with SL @ 1220/1217 . Current level seems to be strong support judging from the past patterns.

One step forward - two steps back

One step forward - two steps back

During the Carbon Expo I got a strong and positive feeling the carbon market is not dead yet. Quite the contrary, its alive and kicking despite the regulatory regime 'they' want to put it into - there is still enought interest from utilities and enough interest from financials to make the market - and on top of it there is still a price.

Very interestingly utilities are price sensitive only in the short term. in the long term they are "policy sensitive". They need to know and be assured of the continuous and stable carbon policy, rather than what the price will be in 2020.

Back to the price and technical patterns.

Well 6.61 wasn't much of a support, on our way down it should have been seen as a Profit Take. 6.40 - previous low didn't help either and carbon traded at around 6.20 euro -  close to the all-time lows. 4 days of consecutive decline - not seen for a long time on carbon - must have led to a correction which brought us where we are now - hoovering around 6.50 euro, while UK traders taking their days off still today and Thursday being a day off for Germany. All in all - carbon still is "imprisoned" in the downward trend. Please refer to my previous post

Monday, June 4, 2012

Brent hitting 16-month low

After the huge fall on Friday Brent continued its declining trend today as well and reached USD 95.63. It was in January 2011 when the price last time was at this level.

What are the reasons behind this movement?

- Looking at the supply side, the tensions with Iran seem to calm down now (although the risk of recrudescent conflicts is still there).
- On the demand side last week’s poor macro data indicate that weak economic growth cannot support oil prices. After the publication of US job data on Friday Brent started to decline sharply and fell below USD 100 and could not recover. Besides of the USA and the EU, China is also sending signs of a slowing economic growth.
- Consequently, stock piles are at a 22-year high.
- Parallel with growing concerns regarding the euro zone, the USD gained momentum which is negative for the Brent denominated in this currency as it becomes more expensive in other currencies.

The Relative Strength Index (RSI), which shows if an instrument is overbought or oversold (values below 30 are signs of being oversold, above 70 overbought) stands at 15.8 indicating that the Brent is oversold. Unless it manages to climb back above USD 100, however, the Brent price can fall further to USD 80, which worked as a strong resistance level in 2009-2010.