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Coal Stocks Still Smoldering

Posted: Sep 28, 2009 15:05 PM by Joey Fundora

Tickers in this Article: JRCC, ACI, PCX, KOL

Back in May, we discussed possible accumulation in the coal sector based on solid price action that was occurring in some of the stocks. Many of these stocks were clearing bases on good volume, and were in the process of consolidating the initial breakout by trading in bull flags. In general, this group did indeed move higher following their May breakouts, and ended up building new bases in the subsequent months.

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The Market Vectors Coal (NYSE:KOL) ETF for instance, broke out of a bull flag in mid May, rallying to $27 a share. KOL proceeded to consolidate for a couple of months before making a new high in early August. After trading to new highs, KOL continued to consolidate, although in a narrower range than before. It looks like it is beginning this process once again with a new high in September, followed by a quick pullback to test the breakout area. While the rally in KOL has not set the world on fire, KOL has been steadily setting higher highs and higher lows.

Source: StockCharts.com

While Patriot Coal Corp. (NYSE:PCX) failed to build on the May breakout immediately, it was able to build a well-defined, although wide, base. Most of the recent trading has taken place near the $8 - $10 range, and PCX was finally able to clear this level in September. Volume expanded on this breakout as PCX surged over 30% in just a few days. Currently, PCX is in the process of consolidating the recent breakout, and could find support at the previous resistance level near $10.

Source: StockCharts.com

Arch Coal (NYSE:ACI) is another coal stock that settled into further consolidation after the initial May breakout. ACI has traded in a very wide range, even falling back into the prior base in July. Ultimately, ACI was able to clear several months of resistance near the $20 level in September. Much like PCX, ACI is in the process of consolidating that breakout in a flag type pattern.

Source: StockCharts.com

James River Coal Company, (Nasdaq:JRCC) on the other hand, is a coal stock that is still well within the base it has been forming over the past few months. The near-term pattern holds some promise, as JRCC cleared a descending trendline that also aligned with its declining 50-day moving average. JRCC was also able to clear the high it set in July, suggesting a possible test of the June high. JRCC appears to have support near $16-$18, and that area could be a logical place for buyers to step in on an extended pullback.

Source: StockCharts.com

Bottom Line
While it's possible that the coal stocks still have more room to consolidate, the overall chart patterns remain constructive. Most of these stocks were able to clear their bases on an increase in volume, and remain good candidates for finding support on the current pullback. Of course, much depends on whether the general markets are beginning a deeper correction, or simply experiencing a temporary retracement. However, this is a good group to watch to see if it continues to perform with relative strength to the market, and thus offer a buying opportunity.

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

By Joey Fundora

Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis.

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