Saturday, July 05, 2008

Coal Gets Hit Hard

One of the groups that was showing relative strength over the past 3 months were the coal stocks. These stocks have been holding a very tight uptrend until last week.

Above is a daily chat of the ETF for coal, symbol KOL. You'll notice over the past 2 trading sessions these stocks got hit hard as a result of a downtick in European spot coal prices. Notice the range expansion and huge volume that is taking place right now.

Two weeks ago coal stocks were on my list as possible longs on the next dip, but after seeing what happend last week I think I'll leave them alone for now...Whew!


Anonymous said...

Hi Kevin
Could you please elaborate what inference you draw from range expansion and contaction. I have seen it being mentioned at quite a few places but do not know how to interpret it. For example would you like to see a range contraction in the coal ETF befor you consider buying them.

Kevin said...

Let me briefly just say that range expansion in a new direction usually means a change of trend. If the range expansion took place after an extended move, it could mean exhaustion.. It really depends on where the range expansion takes place.

As far as range contraction, I'd love to see that just prior to taking a position because thats when the risk is low and the reward is high.

Gary said...

I noted the other day on the SMT that the DJUSCL index was 76% above teh 200 DMA. It's very rare for an index to push more than 60% above the mean. At the top the Nasdaq was only 57% above the 200 DMA. The higher probability trade would be for the parabola to collapse back to the average. Often when something gets stretched this far it will overshoot on the down side also. So I don't know if the 200 DMA is going to support this one.


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