I’ve been obsessing over this Coal chart for the last few months watching this healthy consolidation take shape. I first pointed out this development in March, and although we were up a few percentage points since then, it wasn’t really until last week that we finally got going. The bigger the base, the stronger the breakout tends to be. In the case of coal, we had 4 months of a tight consolidation. I love that.
Just to review what’s just occurred, let’s go over the thought process behind the trade. The first thing that stands out is the overwhelming anecdotal evidence of hatred towards the coal stocks. Who’s pounding the table on Coal? Very few if any. Second of all, I’m not a pure Elliottician, far from it, but I’m not blind to a beautiful five wave pattern either. We have that here in $KOL and often times a solid bounce develops from the end of a 5-wave move like this. The 3-of-3 is text book:
So Elliott wave tells me to pay attention and sentiment says to pay attention. Okay, now you have my attention. What is momentum doing? Well, here is the daily chart of KOL showing a massive bullish divergence developing. This is not just at last summer’s low, but once again on the retest of that low earlier this year. Some might even call this a double bottom, but that won’t be confirmed until we take out 20.50, which are last Septembers highs. So although not really relevant yet, the potential is certainly there:
Wow, so momentum looks great. Is the relative strength also improving? Not only is it improving, but we have bullish divergences in momentum on the relative strength daily chart as well as the weekly. That combination reminds a lot me of Apple’s epic top in September 2012; we had the same thing. Look at this weekly chart of KOL/SPY showing the improvement in relative strength:
Now look at the daily chart. Nice right?
Check. Check. Check. Check. Now what? We wanted to see a breakout in price right? Well we just got it:
Looks great to me. We only want to be long above this 4-month consolidation. If it falls back into it, then the chart is not as clean. I only like clean charts. Funny we’re talking about coal in this way, the dirtiest of energy sources.
Love it. The first target is $26; the highs from 2012, which in my opinion was wave 4 of the 5-wave declined that first got my attention. Take a look at the $KOL holdings and there are some more interesting setups in there as well.
I think this is a great example of incorporating many of our tools to come to form conclusion. I know I’ve mentioned this trade a few times recently, but figured that going over the entire thought process could add some value. I hope I accomplished that.
Go get ‘em!
REGISTER HERE for more information on how to access these price and relative strength charts for all sub-sectors on a weekly basis.
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.
Recommended for You
A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…Associated Press
Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen ofInvestor's Business Daily
"The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt andYahoo Finance
Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.WSJ Live
Tycoon's arrest sends shock wave through Russia MOSCOW (AP) — The arrest of a Russian telecoms and oil tycoon has sent shock waves through the country's business community, with some fearing a return to the dark days of a decade ago, when the Kremlin asserted its power by imprisoning the country's…Associated Press
CNBC Bill Fleckenstein of Fleckenstein Capital appeared on CNBC's Futures Now program on Tuesday. Futures Now host Jackie DeAngelis came out swinging, asking Fleckenstein right at the top if he was willing to admit that he had misunderstood monetary policy. Sounding taken aback, Fleckenstein…Business Insider
Beanie Babies creator's sentence debated in court CHICAGO (AP) — Federal prosecutors seeking to put the billionaire creator of Beanie Babies in prison for hiding millions in Swiss bank accounts told appellate court judges Wednesday that the toymaker's sentence of probation threatens to erode the…Associated Press
The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…Associated Press
Gilead Stock Is Falling On These Drug Setbacks Gilead Sciences (GILD) shares are backsliding Wednesday on news that the patient drop-out rate for hepatitis C drug Sovaldi is quadruple that of clinical trials. In addition, the biotech's Phase 2 study resultsInvestor's Business Daily
The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…Reuters
When the Alibaba Group Holding prices its initial public offering Thursday, small businesses in particular will be watching. Founder Jack Ma -the former English-teacher-turned-dot-com billionaire-has touted his e-commerce platform as a way for smaller merchants to expand their international…CNBC
“The credit card relationship between American Express and Costco Wholesale Canada will not be renewed when it expires” on Dec. 31, the company said today in an e-mail to Canadian customers. The message was attributed to Lorelle Gilpin, vice president of marketing and membership for Costco…Bloomberg
Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO
Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…Business Insider
Elon Musk is arguably one of the greatest entrepreneurial minds of the 21st Century, but he was outsized an old school aerospace giant. Boeing won the bulk of NASA’s contract for a space taxi. One of the other companies vying for the deal is SpaceX, the company headed by Tesla’s Musk, will get a…Talking Numbers
The work debt collectors do is not popular, and has become increasingly derided by those who don’t like what we do or simply don’t know the facts about debt collection. Too often, debt collection is painted with a broad brush to create a portrait that isn’t accurate, and doesn’t properly educate…Credit.com
Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains24/7 Wall St.
Investors should steer clear of Alibaba , valuation expert Aswath Damodaran said Wednesday. On CNBC's " Fast Money ," Damodaran, a professor of finance at New York University's Stern School of Business, noted that he was looking at Alibaba stock from the perspective of a long-term investor, not a…CNBC
Morningstar's Christine Benz highlights some of her favorite ETFs and low-minimum-investment funds for new investors.Morningstar
Beset by crushing debt, fleeing customers and run-down facilities, Trump Plaza on Tuesday became the fourth casino in Atlantic City to shut down this year. Trump Plaza is the latest victim of casino contraction brought on by competition in neighboring states in the saturated northeastern U.S.…Associated Press
In turn, Cramer says making money in the market, involves looking at the environment through the lens of the Fed. "The trick is to remember that they speak for the common person," Cramer said. "The Fed wants the common person to make money." With that backdrop always in mind, Cramer says it becomes…CNBC