Thursday, September 26, 2013

Range-bound market

For nearly a week carbon is locked in a fair range of 5.30-5.55 euro. Intraday chart could point to a formation of a small downtrend.

However, most recent behavior, support at 5.35, can potentially give small kick to the price as we seem to have a double bottom here. As a confirmation, we need to see the price breaking above 5.52 and 5.57. Having said all that, market possibly will move in a range. Lacking other price drivers, carbon could well follow any move in German Power.

Thursday, September 19, 2013

Fibonacci and psychology overturn the market

The other day, one market analyst tells me that 5.96 is a strong resistance as it is significant Fibonacci level. I ask him for his chart ... and indeed it was. You just need to really zoom out and look at the downtrend that started back in November 2012. On the other hand, 6.00 is a strong psychological level to break - so you can see how technical and psychological analysis can set the market to your advantage. For us more important now should be the level of 5.14 - also a Fibonacci level - and 4.90 - the recent heights.

Recently have I written about the Shooting Star formation and the probable market (chart) behaviour, once this pattern emerges. I would like to highlight (please compare with circled patterns in the chart below) few examples from not so distant past, where the Shooting Star signaled a change of trend.

Does this all mean we are under a strong influence of 3 bearish factors? Is this the right time to sell? You don't climb a mountain the same way you run a 100m sprint; you need to take pauses on your way to the top.

Tuesday, September 17, 2013

Bullish break out from a range

Last week we saw some fireworks in carbon, when the price was pushed up to 5.85 on short squeeze. The volume on that last push wasn't amazing and we saw nearly an instant drop down to mid 5.40s.

This week we started with double primary EUA auctions which were absorbed (surprisingly?) well. We saw certain consolidation on the market and expected it to move in a range of 5.40 - 5.60 with any risk to the upside. We never actually settled under 5.40 and any visits below that level were short lived. Two days of a range bound moves also allowed for the RSI to come down a bit from the overbought territory.

With a second look at the 15 min chart - please see the last chart above - you may actually find a small trend building up, that resulted in tonight's rally towards the close. In this bullish tone we can see the market pushing higher ahead of German elections over the weekend.

Thursday, September 12, 2013

Wednesday recovery and Inverse Head and Shoulders opens market for further gains

Wednesday market behavior was a very interesting one, and to make my point at the beginning, it wasn't bearish at all. We had a slippage down under 5.00 euro which many (of you?) took as a sell signal - but no new low was reached, it picked up few cents away from 4.90. You might have been stopped out on your long position, but going short in my view was too aggressive.

We had a wonderful recovery on Wednesday to finish in high 5.20s, few days ahead of increased auction volume. That was a first long entry signal. This created a very interesting chart pattern - Inverse Head and Shoulders, which usually opens the market for further gains.

Second entry for going long - building up your long position - was when we broke 5.40 and break out above 5.48 could have been the third before the market rocketed on stop loss orders.

Monday, September 9, 2013

Market undecided, Doji pattern

After the sharp gains in the last 3 days, market is now at the crossroads. We see a Doji pattern - long shadows and small body of a candle - which indicates the market (market players) hesitates over the direction. Shall we still push higher or brace ourselves for a (sharp?) correction? One could only expect that after rather exhausting bull run there comes a time for a rest.

What caused today pause in the run? Some say it was due to a relatively poor result of an auction, few cents under the market and relatively low bid-to-offer cover ratio. However, think this, at the time of auction clearing, some +6m EUA were traded already, whereas in the past (especially in August), the auction usually was the start of the trading on a day. You can only imagine that once the buyers chased up the market to 5.56, the demand in auction was somewhat limited.

It is crucial to understand, that Doji doesn't mean a reversal or an end to a trend. It just shows indecision. Doji is a rather strong sign that the trend is losing steam, so it is advised that any remaining open positions (in line with the trend) should be closed or limited in size. In the end, the market may, very well, continue to follow the trend - to go higher in our case, as the chart is still bullish. Place your bets.

Thursday, September 5, 2013

Carbon rallies to 5.00 euro on technical support / fundamentals change

Bottoming nicely out from 4.40, market started to climb on Wednesday afternoon, following the increase in power markets across Europe.

Closing the gap - as shown in the circle - provided the incentive for aggressive buying, which resulted in the rally being continued today, breaking most of the resistance levels there were (4.54, 4.64 - recent consolidation and 200 DMA - rather crucial level).

Bears closing their shorts helped to push the market higher and higher; we parked for a while @ around 4.74, before eventually topping around 5.00 euro. Volatility was good and finally we had a much wider trading range, compared to 10c during August, which may attract further attention of daily traders.

On the bearish side of the things; we have 4h RSI @ 80.72 ! and daily RSI @ 71.82 ! a Sign of an overdone buying spree. However, one or two days of consolidation between 4.75 and 5.00 can cool the RSI down a bit.

We also got to know final cross sectoral reduction factor for Phase 3 of the EU ETS and that the physical allocation should happen within 1 to 3 months. Additional 66m of 2013 allowances will be auctioned during the course of 2014.

All in all, I think we are up for another volatile day - if not a week - and i would expect gap on opening and chasing the market up again. Perhaps one could consider closing your long position on the rally.

Tuesday, September 3, 2013

Carbon price dives

After topping at 4.70 and stabilizing around 4.60 for 2 sessions, carbon prices dived touching 4.41 this morning.

The downward movement can be partially attributed to a technical correction. Market looks for support around 4.40 where 20, 30 and 50 day MA could eventually meet; now standing @ 4.45, 4.42 and 4.34 respectively). 4.40 - 4.45 euro can prove as a support, as it did back in late August; it is also 61.80 Fibonacci retracement level.
On the other hand, fundamental change in supply of EUA - namely, EU auction volume back to pre-summer levels + Poland adding some 3.6m units every week until mid December - could have bearish impact on the market, with traders making "extra room in their warehouses" to absorb any additional supply.

Despite the fact, the chart still looks bullish (no new local low), I believe failing to close above 4.40 could drive the price further down. Perhaps purchase @ around 4.40 with cautious stop loss could be a new trade opportunity here.