What About The Coal ETF?
Dragonfly Capital | May 08, 2014 08:28AM ET
Coal has been regarded as a dirty rock with a bad reputation since anyone can remember. We were all primed from an early age to believe that Santa brought coal to bad kids.
So when Market Vectors Coal (ARCA:KOL), the coal ETF, started an historic move lower (as can be seen in the chart above) it was easy to sit back and think, yeah that makes sense. A bit of behavioral finance mixed with your daily macro markets.
But that phase, from the middle of May 2013, started to interest bottom fishers. Could it reverse higher?
Bottom fishers were interested during the basing in 2012 from May through September as well, but that did not turn out so well. Would this be different? Zone in on the short term chart below. I have highlighted the 200 day Simple Moving Average (SMA) in blue. During the whole run lower this has turned back any advance with only a brief period when price moved over it, in early 2013. You can see that price is testing it again now.
But notice it's not gaining any separation from it. The chart looks promising, having made a higher low and then a higher high, but the momentum is still lacking any strength. Other indicators are mixed.
The RSI has moved into the bullish zone but it made a lower high and is now looking at a lower low. The MACD is also moving lower. And at the bottom, there are no signs of accumulation, just a flat line.
This looks set up to fail and fall back again. I know that this means that many bottom fishers will be taking a chance at it moving higher. And if you were to do so in a controlled way, against a stop around the 50/100 day SMA cross at 18.40, that's not a horrible play.
But as a technician I see this ETF in consolidation, not a trend higher, and therefore no need to be long it at this point. Should it make another higher high and turn that 200 day SMA high, gaining some separation, accompanied by a turn in the RSI and MACD upward and some accumulation, then it gets interesting. Until then everyone else can have at it. And I will watch from the sidelines. Whatever you are going to do, good luck.
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Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Original post