Thursday August 02, 2012
by Richard Rhodes, editor The Rhodes ReportTechnically, the energy sector is starting to look like a bottom. For our portfolio trading strategy, we are concentrating on several new positions in the coal sector.
The technical chart for energy shows a narrowing triangle. A break of either trendline signals the next big move. It’s suggesting a move higher for now.
In terms of coal shares, we believe them to be sold out and on “fire sale”, and we believe that the Patriot Coal bankruptcy marked the bottom in these stocks.
Now, that doesn’t mean they aren’t risky, but if one diversifies them a bit – and they do make a worth run, which the technicals clearly support at this juncture – then a basket of these as a small percentage of the portfolio could provide outsized gains.
For our purposes, we’ll be buying a basket of 3-coal stocks:
Peabody Energy (
BTU),
Arch Coal (
ACI) and
James River Coal (
JRCC).
The 52-week highs on these are $58.78 for Peabody; $25.50 for Arch; and $18.71 for James River. As of this writing, they now trade at $20.88, $7.21 and $2.29, respectively.
Could they go lower? Certainly; but we believe they are all sold out. This “basket trade” isn’t expected to be short-term, but more of any intermediate-term trade.
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