Sunday, February 8, 2015

BTU Peabody Energy Daily Chart

It is always interesting to look back at trades as they progressed. Coal is hated. President Obama carries out a War on Coal for the last six years crushing the coal producers and destroying families across Ohio, Kentucky, West Virginia, Pennsylvania and other states. Many rural areas rely on the coal mines as the major income producer for the community but these folks have been tossed under the bus like a piece of garbage. The president and republican and democratic lawmakers and central bankers are only concerned about making the rich more wealthy (since they own stocks) at the expense of the common population. Afterall, they are all part of the wealthy elite class.

BTU is one of the major coal producers that have been annihilated. The chart shows three stages of the thinking process as coal collapses. Catching falling knives is always dangerous. The dark green lines show overbot conditions, positive divergence and a falling wedge pattern, all bullish so the bounce in mid-December was predictable. However, note the histogram printing lower lows (red line). That told you price would come back down again, and it did.

As Peabody made new lows, the neon green lines show the same set-up so it is a comfortable place to go long trying to pick a bottom and the histogram had fully recovered and was positively diverged. Falling knives cut deeper, however, since price leaked lower in January. Some of that may have been due to the president's State of the Union speech which was viewed as more coal-bashing. The neon blue lines show the continued great bullish set-up so there was confidence to add to the long trade. When catching falling knives you have to keep capital available to do multiple scale-ins in case the knife keeps falling (as long as the chart set up remains attractive for the long side which BTU did). Then the much-awaited rocket launch occurs due to the possie d and the long trade is successful.

Price gaps up so these gaps may require filling going forward. Price was extended under the moving averages and needed a mean reversion higher. Price may want to play around at the 50-day MA for a while. The stochastics are overbot and want to see a pull back for a day or two to take a rest but the other indicators are long and strong wanting to see  higher highs in price for the days ahead after any pull back. If you are a trader that likes to trade with strength and a trend then the coals are worth a look.

The weekly chart is positively diverged and wants to sustain a bottom very similar to the WTIC weekly chart. The monthly chart shows a weak and bleak money flow indicator that is not as satisfied with the low price print for BTU as the other charts and indicators. So the daily chart wants some more upside for the days ahead, after a couple-day pullback, so the 8.6 resistance is in play. The weekly chart is agreeable to more upside so BTU may move sideways to sideways higher for many weeks teasing up to 8.6 and potentially 10.0. Like oil, however, perhaps softness will reappear in late spring, summer or Fall.

Overall the coal sector remains an attractive area for potential long plays this year. Instead, investors are flocking into utility stocks and consumer staples blindly buying thinking they will receive safety and collect a divvy during any broad market downturn. They will collect their divvy but these stocks are going to get crushed with the broader market unlike the expected market behavior from years gone by. The Fed and other central bankers have created new bubbles so all sectors are bloated including utilities and consumer staples and they will not provide protection during a  market selling event as would have been the case years ago. PG, always a fave for protection in a market down turn is already collapsing off its bubble peak.

It is likely prudent to ditch at least one or two of the utility or staples positions if you own them and consider placing that dough into a coal miner. If a broad market selling event smashes stocks lower, utes and staples may be crushed another -10% to -30% lower and are already -10% off the top. On the other hand, coal has been bludgeoned already and is in sick bay recovering and will likely move sideways and even sideways with an upward bias independent of the broad market machinations this year.

Traders will also begin to realize that President Obama is gone in late 2016 which is coming fast and the new guy, especially if republican, will reverse much of the coal hate from the current Whitehouse and crank up the mines and help the rural poor which will boost the coal stocks. Keystone is out of the BTU long on the big bounce but will consider reentering; the gap levels underneath may provide targets for potential long entries going forward. Despite all the negativity and outright hate displayed for coal, or perhaps because of it, having at least one coal stock in the portfolio is a prudent strategy moving forward. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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