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of the summer as the European Commission will only start to debate on the amount of the units that should be temporary withdrawn from the scheme as of September.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.


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.