King Coal shows strength on emerging-market demand.
The Stock: Western Coal Corp. (WTN-T) Recent price: $6.50
The Trend
Gains by commodity stocks since the end of August have been
considerable, and the number of stocks in resource industries with new
bullish price trends has surged. The S&P/TSX Metal Mining index is up 33
per cent in the period and the sector has been a major reason the
Toronto market has climbed back above its first-quarter peak. But
non-base metal mining stocks have put up stellar autumn performances,
too - including uranium mining shares after a strong move last week. Not
lost in the broader mining rally, though, is the resurgence of many coal
stocks.
Market Vector Coal ETF and the Powershares Global Coal Portfolio have
fired up 29-per-cent gains during this most recent commodity rally.
Component stocks in these funds represent different aspects of the coal
industry, but coal miners are the main polish on the group. The coal
market's fundamentals are correlated with Chinese economic prospects in
particular, and the growth of developing markets in general, so the
bullish trends of coal mining stocks relates a positive sentiment from
investors about the global economy.
Improved fundamentals for the U.S. coal industry are showing in the
stocks of its major producers. Although finishing last week on a soft
note, shares of Peabody Energy have advanced in prime technical form,
trading a string of six straight weeks of higher highs and higher lows.
A similar recent rally in CONSOL Energy and even better performances
over the past 13 weeks by the stocks of Alpha Natural Resources, Arch
Coal, and International Coal Group suggests the group will finish 2010
above the resistance that capped industry share prices over the past year.
Canadian coal stocks have shared the upbeat tempo. Integrated miner Teck
Resources, a current Stock Trends Bullish Crossover stock, announced a
new 10-year deal with Canadian Pacific Railway to ship coal from its
mines to West Coast terminals, a positive indicator of the company's
demand for coal transport capacity. Shares of Grande Cache Coal hit a
road bump last week, but are still outperforming the broad Toronto
market by 20 per cent over the past three months. The stock of Cline
Mining Corp. is also holding on to its big September gains. And surely
enjoying the glow of the coal fire is Westshore Terminals Income Fund,
operating Canada's busiest coal export facility. Its units have been
trending positively since the second quarter of 2009 and continue to
notch all-time highs.
The Trade
Western Coal shareholders appreciate the improved conditions. The stock
has recovered from a huge setback after shares collapsed from an April
high of $6.97, dropping below their previous bullish trend line to
eventually find support at the $3.50 level. The mid-year dip is coming
full circle, though, as the stock is approaching its first-quarter peak
again. The crossover of the 13-week moving average above the 40-week
moving average is a Stock Trends signal to review this stock for an
intermediate-term trade, but a move to a new 52-week high would be a
good trade trigger. Shares dropped to $6.23 early this week, so patience
might be in order.
The Upside
If the industry momentum helps carry this stock through the final months
of the year, a move above $7 should deliver a further 15-per-cent gain
ahead.
The Downside
An emerging-market shiver could cool down coal stocks. A drop below
$5.50 would be an early signal that this trend trade has derailed.
I am something of a momentum investor. I find Stock Trends useful as I can look at my portfolio as a “watch list” and quickly see where trends are declining in strength or reversing, so it is particularly useful as a tool in portfolio management regarding sales.
