Probably you’ve seen this chart a few times in the last couple of weeks saying that S&P500 is expensive compared to commodities. Well, don’t go and just buy a random commodity… for example, as I wrote, I am expecting gold price to fall. But on the other hand it seems European energies could rally and let me present what I see here.
Let me start with my dear German (Phelix) power (electricity) futures. German power is a benchmark price for the whole European power, it’s the most liquid and one of the biggest markets in Europe. Cal18 futures contract seems to be breaking out of a very nice multi month consolidation pattern. The price closed trading at 31.84 EUR/MWh which confirmed the breakout if you ask me. One wants to be long if the price is above 31.00-31.50 EUR/MWh.
— Domen Butala (@DomenButala) July 4, 2017
Very closely linked and highly correlated to German power is European TTF gas. TTF is the benchmark for the continent while NBP is UK gas. Again, Cal18 looks to be forming a nice bottoming formation as well. Confirmation would be a price move above 16 EUR/MWh while below 15 would neglect the view.
And let me finish with EUA CO2 Carbon Emissions, another commodity being linked to both power and gas. We got a daily and weekly close above 5.20 which completed a small inverted H&S pattern with a target of 6.20 EUR/t.
— Domen Butala (@DomenButala) June 20, 2017
If the price gets there and then also higher, this would complete a major bottoming process, but let’s go step by step.
Could they be telling something what the big boys, such as oil, might be missing, eg could demand be picking up?