European Energy Markets:
Cautious bullish stance in bearish zone
In short: A cautiously bullish stance is maintained while TTF, NBP, German Power enter bearish reversal zones.
The Clever Markets Regime Index shows that the TTF, NBP and German Power markets are still in non-trending regimes. This means that strong bullish follow through is hard to achieve. In non-trending markets, uplegs tend to be roughly as long as downlegs and are sometimes best traded on the lower-level hourly charts for precise timing.
As the markets continue to gradually edge higher to their peaks from late September, mean-reversion risks are building as prices push into their typical high-likelihood bearish reversal zones (as per our proprietary trend indicator).
German Power is the key exception. Our in-house Extreme Bull Trend signal turned positive late last week, and a decade of historical data suggests these extreme trends have a high probability of extending even within a non-trending regime. So far, that bullish continuation is still playing out on German power.
Overall, our models favour a cautiously bullish stance, but downside correction risks are mounting this week. A shift into a Trending Regime for any of the thee markets would strengthen the case for further upside and reduce the immediate mean-reversion risks.
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TTF Sentiment Benchmark
Apart from one balanced week, the sentiment benchmark has been signalling a bullish preference for the past two months.
With half the market being already bullish at the start of this week, upside continuation past the September price high would not accelerate the trend but simply reaffirm the majority of traders. Business as usual for them.
A brief decline, however, could cause the majority of the market to close some of their long positions. This could fuel a sharp decline.
Our proprietary tools show that we are entering a high-likelihood bearish reversal zone. This is no guarantee for downside, but we are more sensitive to bearish signals.