Are Coal Stocks Poised for an Epic Breakout?

July 23, 2014 7:02 AM

Whenever I bring up coal stocks to my smart friends, they laugh at me and tell me to order another drink. I kid you not. I’m lucky that I live in New York City and get to hang out with some of the smartest minds in the business. I’ll never take that for granted. But anecdotally, it allows me to throw out feelers on some of my ideas and get feedback on what I’m thinking. It’s funny, no one I know agrees that coal stocks look interesting here.

So we can start there. It’s not data driven evidence of hatred, but through my experiences I can’t say it’s not a good starting point. The reason I’m bringing it up today is because of the incredibly tight consolidation taking place since March. Almost five months ago I put up a note suggesting it was time to own Coal stocks for a variety of reasons. Since then, the $KOL exchange traded fund is only up 2-3%, but it’s the consolidation that’s taken place since then that really gets me excited.

Look at this weekly chart of $KOL. It’s rare to find a tight range like this for such a prolonged period of time. We’re going on almost 4 months of this action:

7-23-14 kol

The best way to execute, in my opinion, is to wait for the breakout. Eventually, there will be a resolution. In my opinion it’s going to be to the upside, which could present a monster rally that would return 40-50% in a very short period of time. I would consider a confirmed breakout to be a weekly close above any of these others 19-19.15ish. It really all depends. I would love to see a gap higher out of this range. Some might call it a, “gap and go”. It’s hard to predict at this point. But this consolidation can’t be ignored. Epic moves have been born out of this type of pattern. So I’m waiting patiently.

I thought it would be prudent to bring up this recent development. It has nothing to do with who our president is or who he isn’t, it has nothing to do with alternative energies and even less to do with any geopolitical turmoil. This is strictly based on supply and demand dynamics. And looking at this chart, if demand can exceed supply just enough to break this out of it’s range, look out!

***

REGISTER HERE for more information on how to access updates on this chart on a weekly basis

 

Tags: $KOL $CNX $BTU $JOY

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

View Comments (8)

Recommended for You