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Tickers in this Article: KOL, PCX, ACI, JRCC
On December 7, 2009, the Environmental Protection Agency made a long anticipated ruling stating that greenhouse gases threaten public health and that they should be regulated under the Clean Air act. This would mean the EPA could regulate those gases without the approval of Congress. This ruling could have an obvious impact on certain sectors including coal stocks and utilities. Rather than attempting to analyze the fallout or impact of this announcement to the relevant sector, as a technical trader I can simply look at a chart for evidence of what action investors are taking.

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In looking at the coal sector, we can turn to the Market Vectors Coal (NYSE:KOL) ETF. This has been a good performer over the past few months, as KOL rose over 15 points from July through November. KOL has consistently found support on pullbacks to its rising 50-day moving average as highlighted by the blue arrows in the chart below. There really hasn't been much action in the ETF since the EPA policy announcement which could mean it was already priced in, or there is little perceived impact. The more important thing to watch is to see if KOL continues on the pattern of finding support on pullbacks, or if it begins to roll over here and starts setting lower lows. That would be the action that would worry me for this group. There has been some weakness in some of the individual coal stocks, which also needs to be watched. (For more, see Forget Green Stocks, "Green" Will Do.)


Patriot Coal Corp. (NYSE:PCX) is a stock in this group that has been consolidating in a base-on-base pattern for a few months. It cleared a prior base in September, but settled into another trading range after the breakout. It has respected the $10.50 level as support a couple of times, while the $14 area has capped any breakout attempts. PCX recently fell under its 50-day moving average and it looks like it is headed for another test of the lower range. It should be watched to see if it can find support before then or at those levels. Potential buyers should look for PCX to reclaim trading above its 50-day moving average. (For related reading, see the Moving Averages Tutorial.)


Arch Coal, Inc. (NYSE:ACI) is another coal stock that appears to be showing some near-term weakness. While ACI remains above the base it cleared in September, it has fallen below the recent consolidation that took place from September through November. Volume has been light on the pullback, and ACI is currently trading near a possible support area established on the initial breakout. The 200-day moving average also looms as possible support below near $18.


James River Coal Company, (Nasdaq:JRCC) has also been showing some weakness, while still trading well within the base it has been forming over the past few months. JRCC recently fell below both its 50- and 200-day moving averages, and could be headed for a retest of the $14 level. It is too early to tell if this pullback is a shakeout or real weakness, so JRCC needs to be watched to see if it can stabilize near these levels.


Bottom Line

The one thing that stood out to me was the lack of a high volume reaction to the EPA news. Often, when news like this comes out it shocks the price of a stock, and in this case, it didn't really do much. However, this group has been showing some weakness that needs to be monitored. Each of the individual stocks is trading below its 50-day moving averages, which is a sign of weakness. This action could easily spill over to the ETF, which has held up to this point. At this point, there is no trading opportunity that presents a good risk versus reward ratio, but one could present itself soon if the group finds support near established support levels. At that point a reversal or breakdown can both be accounted for. Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Charts courtesy of www.stockcharts.com

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

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