Like we predicted and advised in June, coal stocks have been booming lately. About six weeks ago, the Market Vectors Coal Fund (NYSE: KOL) hit bottom, down 35% for the year. But now the prices have rebounded. All indicators point to KOL entering into a decidedly bullish period. Not only that, but KOL has also started trading above its 50-DMA and as any good technical stock analyst will tell you, when a stock begins trading above its 50-DMA, that is a clear sign that the stock is acting in a bullish mode.
A strong buying spree from the Chinese has also contributed to coal’s increase in price. Across the ocean, coal has seen a small bump in price because of the Colombian operations of US-based coal miner Drummond, where an indefinite strike has begun due to a dispute over wages and benefits.
But to turn back the U.S. market and KOL in particular, all the technical data has shown that coal prices have already reached their bottom and are at the very beginnings of a long-term uptrend. For the savvy investor, this would be the perfect time invest in KOL stocks and set a stop-loss near its 50-DMA, or about $18. Over an extended period of time, it’s likely that KOL will begin to trade above its 200-DMA, or about $22.
True, coal has been facing an uphill battle for business this past year. This has been mainly due to lower natural gas prices, excess coal supply, and weak economic conditions worldwide. However, coal consumption has increased in the U.S. this year and coal producers are curtailing their production. Coal markets are already starting to rebound thanks to these production cuts and higher coal consumption. If these initiatives are kept in place, coal will remain bullish. And it will remain a very wise investment.
India, one of the world’s largest consumers of energy, is making a switch in coal in the months to come, as well. This signals a large-scale switch from natural gas as its gas fields age. Coal imports by India will consequentially rise. This bodes well for coal producers in the region. Essar Power, one of India’s largest energy producers, plans to convert two of its largest power plants to coal. This move will cut its gas usage to 15% and raise its coal usage to 77%, nearly double what it was before the conversions.
As can be seen through these statistics, coal has reached that point where a rebound in price is all but inevitable. It is entering a bullish period and looks to stay in that position for the foreseeable future.
