Some of our "top 100" players have recognized the momentum of coal stocks early in the contest. So I asked the question: How far north can we go with coal?

Here is my selection of coal stocks. Take your pick, but remember they had a great run so far.

Do your own DD:

http://www.newfuelnow.com/coal/ 

54.970 +1.170 +2.17% Vol: 190,296 Last Trade: Jun 18, 2008 15:59:56 EDT
	100.050 +3.920 +4.08% Vol: 6,194,032 Last Trade: Jun 18, 2008 16:03:12 EDT

75.400 +3.790 +5.29% Vol: 5,734,255 Last Trade: Jun 18, 2008 16:00:49 EDT

117.340 +8.020 +7.34% Vol: 4,921,181 Last Trade: Jun 18, 2008 16:03:08 EDT

90.840 +3.840 +4.41% Vol: 2,429,289 Last Trade: Jun 18, 2008 16:00:42 EDT

78.720 +3.350 +4.44% Vol: 1,308,568 Last Trade: Jun 18, 2008 16:01:38 EDT

13.280 +1.090 +8.94% Vol: 7,824,683 Last Trade: Jun 18, 2008 16:00:32 EDT

59.300 +4.760 +8.73% Vol: 3,601,116 Last Trade: Jun 18, 2008 16:00:00 EDT

90.320 +4.640 +5.42% Vol: 5,084,484 Last Trade:

9.610 +0.710 +7.98% Vol: 3,260,935 Last Trade: Jun 18, 2008 16:00:03 EDT

83.060 +4.090 +5.18% Vol: 7,820,784 Last Trade: Jun 18, 2008 16:03:52 EDT

161.390 +8.100 +5.28% Vol: 1,322,867 Last Trade: Jun 18, 2008 16:02:55 EDT

98.170 -2.660 -2.64% Vol: 130,292 Last Trade: Jun 18, 2008 16:00:14 EDT

58.580 +1.230 +2.14% Vol: 527,191 Last Trade: Jun 18, 2008 16:00:00 EDT

104.000 +1.280 +1.25% Vol: 2,260,619 Last Trade: Jun 18, 2008 16:01:17 EDT

21.000 +0.800 +3.96% Vol: 52,200 Last Trade: Jun 18, 2008 16:00:35 EDT

good to know thanks I will look in to them thats one sector i havent explored yet.

Don't forget the etf KOL, a basket of all of them.

dewdrinkrt78:

good to know thanks I will look in to them thats one sector i havent explored yet.

trust me coal is booming.

i have jrcc, aci and ncoc and they are all doing great, pvr didn't do much for me but thats ok 

I only have JRCC and bought it at $47/share. 

Another good gainer for me is IPI.  IPI is also in mining but the company mines Potash, a component used in fertilizer. 

I think the recent spike for Potash is a direct result from the floods in the midwest.  I''m not a farmer but maybe farmers not affected by the floods will attempt to plant a late crop of corn, wheat, soybeans, etc to take advantage of the rising prices ? Other big companies mining Potash are MOS and POT.

 Do you feel the pain?

It didn't really matter what sector you were if this past week. If you were long, you probably got a little bloodied. But that was then, and this is now. What's next?

I'm sure a lot of you are wondering, "is the correction in coal over?" Well, I don't know. But I can tell you what I think and how I plan out a strategy in reaction to what has and may happen.

First of all, it is not about the correction being over, or not over. It's more a question about magnitude and probability. Let me be more specific and relate this to the current situation in coal stocks.

If the current decline is indeed over, then I would also believe that a move up from the current price would immediately be capped by overhead resistance (the green hypothetical price path). A break of the recent highs would be of low probability. Thus, I must conclude that the magnitude of an upward move would be small. At best, there would be a period of resistance near the recent highs.

What if the current decline is not over? Given how severe the recent selling has been, I also cannot be overly short term bearish. More likely, over that next week (if the correction is not over), we see some type of consolidation (the blue hypothetical price path) before another downward thrust.

That being said, I think it's equally likely that the sector moves up or consolidates and continues down. What about the magnitude of this move? I've already stated that an upward move would receive a lot of resistance. On the other hand, a downward move would probably trigger additional selling. Corrections in the past have generally retraced 50% of their gains from low to high.

For Arch Coal (ACI), this would suggest a move back down to the 150-day exponential moving average [EMA]. And the stock has also had a history of correcting back to that level. (I've selected ACI, as it is a fairly typical looking metallurgical coal stock. Others I like include MEE, CLF (also has iron), ANR and MTL (also has iron and steel milling).)

So, we have what I believe to be equal probabilities of moving up or consolidating and continuing down, but with the magnitude of a downward move being greater.

And finally, one more indicator I use to try to determine the end of a decline, is the concept of decline duration. Typically, large declines take several weeks to ultimately flush out all of the weak hands in the stock (and I'm also under the assumption that there are still a lot of these weak hands in the sector). So far, this correction has been all of two days. The last decline persisted for about two weeks. Add in the fact that the daily indicators still are in oversold, bearish (downward pointing) states and this lends some credence to the decline duration persisting for at least a few more days (see the blue lines on the bottom indicator, which suggests how long a correction might persist).

Ultimately, I believe that this sector retraces to the 150-day exponential moving average. Fundamentally, there have been very strong drivers (in the form of contracts signed at significantly higher prices) in the past few months which support the thesis that this is a correction and not an ultimate top. However, the speed in which the stocks have moved, in combination with a weak market (which, in my opinion, caused momentum traders and retail investors fleeing into this relatively niche sector - think tech bubble burst, and the formation of the real estate bubble afterwards) ultimately created a short term mini bubble.

Happy trading... 

Good analysis, Luego!

I do expect coal to pull back some and become cheap, which I am also waiting for.......holding coal for the long-term is my strategy, and many of the coal stocks that Luego mentioned in this thread are worth looking into. I see very good growth potential in terms of returns on investments with coal stocks, but you have to be very patient in order to see those gains for the long-term period.

I am currently holding ACI (Arch Coal) and BTU (Peabody Energy), and they have made me tons of profits, and have helped to stabilize my portfolio to some extent. If the markets go down tommorow or this week, for that matter, then coal should be cheaper and then  I also held MEE and FDG, which has performed very well over the long-term period of 1-5 years, especially as an alternative to oil.......the China coal companies is what Luego and I have also been going for as well as very good stocks for the last couple of months now........definitely supply and demand issues, espeically due to weather, has played a big part in affecting the coal prices and the price of the stocks of the coal companies there in China.   

Take a look at some of the coal companies that Luego put the charts up.......as I siad before, I am bullish on coal, though in the short-term, you could see a bit of a pullback in the stocks, which should give you an oppourtunity to get into the game, but make sure that your porfolio is not just all coal stocks, and is included in your diversified porfolio, otherwse, your return on investments will suffer pretty badly. Go for a handful.......three or four of them, but make sure you do your homework to see if they are worth investing in and whether they match the investment strategies and goals that you had in mind for your investment portfolio. Good luck and good hunting! 

- Neerav (WSS Coal Trader)

thanks a lot Luego  for this excellent analysis. This reminds me of the price correction that happened to gold a few month back.

  Also in my very humble opinion, when I look at some of the  coal stocks they seem to be over valued!!

  For example fcl has 230 price to earnings ratio!!

jrcc  has a 52week price range off 3.56 - 62.83!!

so I am bearish on coal stocks!

NightTrading101:

thanks a lot Luego  for this excellent analysis. This reminds me of the price correction that happened to gold a few month back.

 

  Also in my very humble opinion, when I look at some of the  coal stocks they seem to be over valued!!

  For example fcl has 230 price to earnings ratio!!

jrcc  has a 52week price range off 3.56 - 62.83!!

so I am bearish on coal stocks!

I am alo bearish on coal, as I do expect it to pull back and the markets are going down, but by the time the markets go back up, they should be very cheap, but for the long-term, I am very bullish on the coal stocks, as I think that in the long-term, say within the next few years, we could be very good returns on the investment of coal.

Therefore, if you own coal, do not add any more to your positions yet.......wait until it becomes cheap.......unfortunately, with the way the markets are going, for the time being, the only pace is down, it is hard to tell when the bottom is coming, but stay the course because in the long-term, on average, you should do well. If you do not hold coal, wait until it becomes cheap enough for you to get in.......it may go further down from there, but you should not panic and sell the stocks, but hold them. There is always going to be a little pain before the gain.......or as they say in excersising, "no pain, no gain". I do see coal doing better, especially late 2008 and into 2009, as we head of out of this recession and back to a decent level of economic growth. However, long-term, for the last few years and for the next several years thereafrer, look for a nice steady growth and return on investments or coal.

Great job, Luego.

I was beating my chest last Wednesday (July 2) for not having short coal stocks last day of the second quarter (Jun 30). I saw it was coming along with steel and some of fertilizer stocks. I blew up a chance of +30k profit day. (I rode over the rampage of the coal stocks last Wednesday and gained +15k profit)

Here’s my story: Fund managers tend to mark up the momentum stocks at the end of the quarter for the show-up of their performances. You are not sure of this? Pick up any solar stock and look closely what happened last December and January. Let me pick up ‘SOLF’ for example. It was at $10 in November, hit the high 40 (400% gain) in December, and collapsed all the way down to $10 (100% retrenchment) in March.

Let’s go back to coals. Momentum cuts both ways. The corrections will be swift and vicious. The followings are my target price for ‘ACI’ (closed at 63.30 on 7/7/08):

1. Last break out point and retest: $55

2. Fibonacci Retracement target:

            $77.40    last swing high (6/19/08)

            $37.82    last swing low (3/20/08)

            ---------

            39.58               3/8 retrace... $62.56

                                    4/8 retrace... $57.61

                                    5/8 retrace... $52.66

                                    100% retrace...

3. -1 +2 chart set-up: three day low (last Wednesday 7/2) following two up days (7/3 &7/4) and then a continuation of the trend (down). So today will be another vicious down day. Keep in mind that trading is a game of probability and that chart set-up is just set-up. It may happen or may not. Be prepared.

This thread is what I dreamed about on WSS. All kind of survivors (fundies, chartists, psychologists, astrologists...) put up their own analysis, have fun, respect and learn from each other, and make money.

Great job again, Luego, Bigneerav, and NightTrading101. Good luck!

THANKS FOR THE INFO THIS IS AWESOME.  I THINK I WILL START BUYING COAL STOCKS. 

TATERTOTS I THINK I'M GOING TO GO WITH THESE COAL STOCKS TOO.  THANKS

Azsky33: 

I did not know about the Fibonacchi retracement, but your analysis of coal is very sound, and from following what you did, I agree that we could see a short-term downward trend. That is what my analysis is showing. I do like coal in the long-term, and having coal sector stocks is worth it. However, things, as you mentioned can get pretty rough.......some of the swing can be quite severe, and you have to make sure you adjust your coal positions accordingly when they occur such that you can mimimize loss and maximize gains, as you would with stocks in any other company, sector or industry.  

Right now, my advice is that if you hold coal, DO NOT sell it yet.......stick to it for the long-term.......if you have NOT bought coal, wait for it to become cheap before getting in.......if you hold positions in coal, also wait for coal to become cheaper before adding more to your position. This will give you a long-term strategic advantage over than buying and selling coal in order to gain short-term profits.

 The coal stocks that I am currently holding, for disclosure purposes, are ACI (Arch Coal), BTU (Peabody Energy) and MEE (Massey Energy), which have been performing quite well, and have been keeping my portfolio bouyant to some extent, even though my overall porftolio has not been performing to my expectations. I also had FDG, which I also recommend.

I know Luego is also big on the China coal stocks, as I have mentioned already in a previous post on this thread, which I would also recommend........in addition to the American companies. I beleive that coal will be seen as a good alternative version of fossil fuel compred to oil, especially if we can cleanly burn coal such that it would reduce the carbon emissions. If the Kyoto Treaty is ratified by all of the countries, that would mean higher standards of emmisions, which would mean that a more efficient and clean way to burn coal would have to be thought up.......but I think we will find a way to burn coal cleanly, but would have to deal with, like oil, a growing demand for coal as a source of energy to fuel the homes, as well as the industries. 

It looks like another leg-down for coal stocks began today. So far it's ugly. All coal, steel, fertilizer, oil stocks are being trashed. Look below! Let's see how it ends today. Good luck.