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We know that the coal stocks have gotten absolutely obliterated in recent months for a whole host of reasons, namely China weakness, hedge fund liquidations, not to mention overall deflationary pressures as well as risk aversion. Looking at charts of individual coal stocks such as ANR PCX WLT, it is fairly obvious that, barring armageddon, they are due for a breathtaking rally from deeply oversold conditions. After all, ANR went from a multi-year breakout last spring back down to its 2009 lows in just a few short months.
As always, though, your entry point matters. Looking at the daily chart at KOL, ETF for coals, we have witnessed a sharp, “V” shaped move off of the lows. Currently, the ETF is running directly into its declining 20 day moving average, and does not present a high probability entry for swing traders. Instead, a pullback and subsequent hold of the $31 level would offer a better risk/reward profile to long swings. Incidentally, this would form a solid inverse head and shoulders bottoming formation, with an upside price objection of roughly $42. To state the obvious, it is a scenario that may or may not happen. But this is what I am looking for in order to aggressively play coal, with a game plan in place.
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Thanks for a great post, I will be following this even though I thought you were going to post about my favorite food-group; cigarettes…
LoL thanks
In my opinion the coal names are severely undervalues and clearly deeply oversold. ANR in particular looks attractive. Although met coal prices have pulled back steam coal prices are off less than 10%. Also, Chinese imports of coal remain very strong. I can easily see ANR getting back to 30. Any thoughts Chess?
unfortunately the right shoulder was formed already 31.34. tough entry but healthy for the sector since a right shoulder should not fall as much as the left one. would have been nice to have some symmetry for an entry 🙁