European Energy Markets:
German power leads bullish charge into tentative exhaustion
In short: TTF / NBP / German power remain bullish in the absence of a clear bearish trigger but we are getting ready for a top.
German Power has taken the lead last week with a shift into a trending regime. TTF and NBP followed last Friday with the uptrend still ongoing. TTF and NBP following German Power is in alignment with last week’s expectations.
The critical question now is whether these three markets may continue higher.
Our proprietary models show that in the past three years, bull trends during trending regimes have typically started to weaken and top out around trend states of +14 and beyond. (No worries if you are not familiar with our in-house algos; we are simply in bearish reversal territory.)
We are now at this critical juncture where the bull trend may be overextended. On the other hand, trending regimes typically mean that the prevailing uptrend has a higher chance of continuation. This is a robust, systematic rule regardless of markets.
A surge in German Power last month during a trending regime may have recency bias in the minds of market participants today.
However, we continue to see limited upside for the following reasons:
- Trend momentum states have been increasing at a snail pace compared to recent price action. This is a sign of bullish exhaustion.
- Historical behaviour suggest a high likelihood of bearish reversal at current states.
Therefore, while bullish plays can still be maintained, we prefer our long exposure to be pared the longer this uptrend persists, while keeping a close eye for bearish reversal setups on both the hourly and daily timeframes.
In other markets, Brent has also recently cooled into a non-trending regime where the moderate bull trend is now seeing a high risk of downside correction. A reversal here could also have spillover effects in the other gas hubs as these markets have lately been trading with a high positive correlation.
EUA continues to stay supported within a prolonged daily channel but there are growing signs of bullish exhaustion amidst the strongly neutral range.
Henry Hub continues to consolidate with dip buyers still actively supporting the market for an eventual rebound.
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TTF Sentiment Benchmark
The bullish sentiment is taking over this week from a reasonably balanced view last week. Recency bias may be at play here with traders remembering the steep rise into late July that we have now surpassed.
This week’s market sentiment opposes statistical probability. Although a bullish bias is also maintained from our side for now, there is an increasingly higher probability for the market to turn lower. But we need to wait for that trigger (see our dashboard for details).