Tuesday, October 29, 2013

At the mercy of politicians

Politicians and political talks, statements seem to be the main driving force of carbon in the most recent days and weeks. Each statement kicks the price higher, while fundamentals stand behind the gradual corrections.

Despite the price jumping to 5.40 on the 16 October, the market couldn’t keep up the bullish momentum. Similar situation happened last Friday.

This week we see a tight trading range. Carbon price seems to be a captive of 100 DMA giving the support around 4.70 now and short term 20, 30 DMAs providing the cap around 5.00 euros. Market stays nervous until 8 November when the Lithuanian Presidency asks each Member State for a mandate to enter into trialogue negotiations over the backloading proposal.

Thursday, October 17, 2013

Three White Soldiers bullish reversal ?

'Three White Soldiers'
"A bullish candlestick pattern that is used to predict the reversal of the current downtrend. This pattern consists of three consecutive long-bodied candlesticks that have closed higher than the previous day, with each session's open occurring within the body of the previous candle. These long-bodied candlesticks are a sign of the change in investor sentiment and are used by traders to confirm a shift in momentum. This pattern may form after a period of consolidation, which is still a valid sign of a move higher, but it is not as desirable as it would be if it were found at the end of a prolonged downtrend."


At the close of yesterday's trading session we could observe a Three White Soldiers pattern emerging - please compare with the chart. Perhaps it is not as perfect as the books say, nevertheless there can be something in it.

The carbon rally was triggered - yet again - by political comments from Mrs Merkel saying that Europe needs "a certain degree of back-loading for EUAs". While weekly auctions might slightly dampen the bullish undertone, the market is still very nervous to any rise in prices. Take the EIB news, which had some impact, compare this to Angela Merkel's 'comments', that caused a spike in prices, the former had substance the latter was political speak in action.

The chart above also contains Fibonacci retracement levels. One could observe that 4.60 - 38.20 retracement level and a 100 DMA was a strong support. The price barely touched the highs of August, when it retraced down at the beginning of October. We could probably see 20, 30 and 50 DMAs (5.14, 5.23, 4.93) acting as supports while the market tests this week bullish reversal.

Wednesday, October 9, 2013

Looking beyond the EIB announcement

Yesterday evening shortly after market close the EIB announced it would start selling the remaining 100m EUA out of the NER300 reserve. News of the pending EIB NER300 announcement had already caused prices to slip below 5.00 EURO
At the time of writing we find ourselves trading at 4.77, the first significant dip below 5.00 since 5 September. Currently carbon market seems to find a support at 4.70 - 4.75 euro – the biggest question is whether this support is technical or psychological.

Technical

1. If we look at Fibonacci retracement, taking the low of mid-April and high of mid-September, we could find support around 4.60
 

2. If we look at the retracement of the most recent upward move, we find a support at around 4.77


3. We have 100 DMA at 4.52, 200 DMA at 4.46

Fundamental 

1. The US may actually soon find a common ground on the budget, and market commentators feel the USD could strengthen having an effect on the EU energy complex, favouring gas over USD priced coal and thus trimming EUA demand.
2. The long awaited allocations should be arriving at installation accounts any day now, providing additional supply.

Psychology

1. It appears many installations were caught by the move above 5 euro and may consider the risk of carbon falling further vs missing the opportunity to hedge below 5.00 euro as favouring the latter.
2. Secondly, the market should have priced in the sale of 100m EUA already – when the sale of NER300 was originally announced in early 2011. In reality the only missing piece of information was the timing of the sale. We now know the sale will be over 5 months counting from mid-November. This gives us approx. +1m EUA daily to the volume we expected in the mid-term future.

Conclusion: There are many contradictory points however this commentator feels that the bears may have a little longer to play and carbon price may still drift lower in the short term; in the longer term I feel we could see prices above 5 euro.

Tuesday, October 1, 2013

Testing the supports

Failing to break above 5.57, carbon prices retreated and moved in the channel as indicated earlier – compare please with previous post. Late last night market took a deep dive, following declines in power, oil and gas prices. In addition to that, an announcement that German government may not be formed until January next year, may have cooled down the hopes for quick move on backloading. Certain profit taking at the end of the quarter could have played its part as well.



We saw some further weakness this morning, with prices falling under 5.00 euro for a blink of an eye. We may see some psychology influencing the trading today again, as 5.00 euro may be an appealing level for utilities to buy. Market seem to be testing 5.15 for a support or resistance. We have 30 DMA (Daily Moving Average) at 5.05 providing some ground. Next support potentially at 4.90.