Coal is Not Done Bottoming

Friday March 2nd I went on the rant on the left side of the page here urging traders to stop trying to pick a bottom in coal names. I try not to be like this but I could not believe what I was seeing. I saw so many traders I respect trying to play the same coal names from the long side over and over. It as bizarre, I could just not believe it. Bottoming is a process and it can take a long time or be rather sharp in its reversal. Coal is certainly not one in the latter camp. In fact from my view of the charts at that point the trajectory still looked lower. That I as right is not the point of writing this. I am wrong plenty of times. The pint is to be able recognize when a bottom has formed and when it has not. Armed with that skill you can avoid paying a lot of commissions as stocks bounce around building that base that they will eventually launch from, or breakdown from further. Recognizing and then avoiding the chop of the consolidation is crucial. I saw a continued and prolonged downtrend in price, with descending Simple Moving Averages (SMA) all above the price, Relative Strength Indexes (RSI) that were firmly in bearish territory and had been there for some time. These factors are all bearish. No signs of a reason to buy a reversal. So 3 weeks later how do they look? Here is a brief look at two to give you the sector perspective.
x
x
x
x

Arch Coal, $ACI

Arch Coal, $ACI, is still in the dumper. After finding support near 11.50 it rose to retest the breakdown of support, now resistance, at 12.80 and is now right back at the low. That RSI is pointing lower as are the SMA’s and the Moving Average Convergence Divergence (MACD) indicator is fading lower as well. In fact the current move lower now has a Measured Move down to 9.80 which will confirm below 11.50. No solid bottom here yet.

James River Coal, $JRCC

James River Coal, $JRCC, fell from the rant and found a bottom at 5 only to also rise and retest the breakdown level at 6.35. It is also heading back lower and has a Measured Move to 4.60. Note the positioning of the SMA’s and the level and direction of the RSI. Similar to Arch Coal. In fact all the coal names look like this. So how do you play it? My suggestion is to sit back and watch, waiting for a rebound back over the SMA’s and to a new higher high over the February highs. I know what you are saying, that is a 50% move higher from the current level in James River Coal. But if it can get to that level and then continue to show strength the upside from there will dwarf that $2.85 move. in the mean time there are plenty of solid uptrending charts to play on the long side with much less risk of a chop or move against you.

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Dragonfly Caps Blog