Tuesday, January 8, 2013

EUA Dec13: How strong is the bullish engulfing formed the 7th of January?

Traded volumes suggest that market participants are returning to the market from their holidays and technical analysis makes sense again. The EUA Dec13 tested the EUR 7.50 resistance level in December twice, but failed to break through. After the second test the price started a declining trend that lasted for nine days (from the 21st of December 2012 until 4th of January 2013).

The trend was reinforced by the MACD falling below the signal curve on the first trading day of 2013. The 30 days moving average fell below its 20 days peer the next day. The 7th of January, however, the price increased from a daily low of EUR 6.28 (the lower Bollinger band) to EUR 6.68 and closed at EUR 6.66 forming a nice bullish engulfing candle. There were several factors behind this movement:

  • Power prices increased across Europe on lower temperatures. At the same time coal prices declined, making heavily polluting coal more attractive in the eyes of power companies. (U.K. next-month coal power plant profit rises 6.2% to record 24.43 pounds/MWh)
  • The year’s first Phase 3 spot EUA auction cleared at a price 5 cents higher than current market price and the bid-to-cover ratio was higher than in December.
  • The market was mature enough for a correction after nine days of decline.

Unfortunately the traded volume on that day doesn’t seem enough for a trend reversal. The MACD is still in the negative territory. Any price appreciation therefore might be limited. The next resistance levels are the 20 and 30 days moving averages at EUR 6.84 and EUR 6.90, respectively and EUR 7.43 that was tested twice already. In a negative scenario the price might plummet to the all-time low of EUR 5.93, although there is a weak support level at EUR 6.22.

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