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.

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