This is the German electricity price EEX Cal 2013, baseload (not peakload). Please note that the small graph is showing the Nordpool Forward 2013 price as a grey line in order to compare with the German EEX price (the black line). Hedging recommendation (updated ad hoc)Prices are sideways (above and below the short moving average on a frequent basis). We have already advised to plan a hedge. Normally we wait for a red arrow before starting the hedge, but in the end it is your risk policy that decides it. Whenever we start a hedging there is always a risk that it turns out to be a "false signal". In that case we should be ready to stop the financial hedge again if prices break below the short moving average on a weekly base. But so far we have no reason to doubt the buy signal, especially because the Nordpool market price is also increasing. Naturally it is your risk and hedging profile that determines the start and lenght of your hedge, and naturally you should only start it once you see prices breaking above the short moving average again. Please read the short term section and the medium term section in order to get an overview of how the increase may progress. Since the forward is a financial contract we can start it without contemplating too much on the ending point, but just leave the contract intact until we get a signal that the increase has peaked.
Hedging history:
January 2012: Plan or start a short term hedge, lasting 2-5 months. Fundamental AnalysisThe EEX Cal 2013 is a financial instrument. Please see "Electricity Spot" for the fundamental analysis on the Electricity market, which is on a European level. | Technical Analysis (updated weekly)Short term (0-5 months):
We have seen prices breaking above the short moving average for one week and now falling below again. This is a false signal. So consequently our yellow arrow is fine - as this is a short sideways trend. The decline below the short moving average is not necessarily the start of a downtrend and a green arrow. Instead this is a short sideways structure, and we still have our warning that: "We may be approaching a short term increase in Q1". We still expect to change the arrow to red at some point here in Q1. The increase we are seeing in Nordpool spot is just reinforcing this picture. For now we can only show the yellow arrow, but in the end it is your risk and hedging policy that determines when you start a hedge. The most likely scenario is an increase from February to May. But basically short term is anything between 1-5 months. We have advised to prepare for an increase, and it is your decision whether you want to wait for a red arrow before making the hedge. But at the current situation you should at least wait for a new break above the short moving average before proceeding.
Medium term (6-12 months):
May 2011 was the start of a medium term downtrend. These usually last 6-12 months. This means that a low can be found in the time interval between November 2011 and May 2012. In this time frame we expected to see either a short term increase or a medium term increase, and the current increase is fitting into the time schedule. Any valid break above the short moving average in the short term section makes it very likely that we are starting either a short or a medium term increase. This could be either short or medium term, and we cannot dismiss the medium term increase of 6-12 months, only point out that it is less likely than a short term increase of 1-5 months.
Major trend (1-3+ years):
The arrow is set as green because EEX EL 2013 is in a major downtrend. Prices are below the long moving average and all the other indicators confirm the downtrend. The implication of this is a 1-3 year downtrend, counting from the peak in May 2011. For electricity the trends is often shorter, so we expect a 1-2 year downtrend. A downtrend like this does not continue in a straight line, but will be interrupted by short term upward corrections. Recently the RSI in the big graph approached 20. We said: "This is a low level and serves as a warning that we may be approaching an upward correction in Q1". This increase is being confirmed now. But we follow this increase in the short term section step by step. Here in the major trend section this is just a natural upward correction, and the major downtrend is still intact as long as prices remain below the long moving average. Business Cycle analysisElectricity Forward 2013 is a financial instrument. Please see "Electricity Spot" for the Business Cycle analysis on the Electricity market. |