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Get Ready... This "Boom and Bust" Sector Is Heading HigherBy Brian Hunt, editor in chief, Stansberry & AssociatesWednesday, April 6, 2011 It didn't take long for the "coal breakout" to happen...
In early March, I noted how, after trading sideways for several months, the multi-year uptrend in coal stocks was close to breaking out to a new high.
The bullish case for coal stocks is still the same: A good chunk of the population hates the existence of coal-fired electricity. But a trader has to keep in mind the U.S. is addicted to the stuff. We use it to generate around 45% of our electricity.
Across the world, the addiction is even greater. The giant and growing emerging markets of China and India ("Chindia") use it to generate more than 70% of their electricity. And as this chart and this chart show, their increased coal consumption is one of the most relentless uptrends in the world.
In other words, we know coal is dirty, but nobody is ready to flat out shut off the lights. If global growth continues to climb, electricity consumption will climb... and coal and coal stocks will climb higher.
That's exactly what has happened in the past month. The big coal investment fund (KOL) has staged an upside breakout to reach a new high. This has put coal stocks, one of the major "boom and bust" sectors, back into boom mode.
.gif) As I noted in my original piece – and showed you in this chart – coal stocks tend to go though huge booms and busts. We've tested all kinds of fundamental and technical trading systems for this sector, and we've found it's best to simply get on board these trends... and use a trailing stop to protect your capital.
Also keep in mind: Like all stock and commodity trades you can make from the long side right now, this is a trade that will climb higher as long as folks have faith that the U.S. government's stimulus efforts will support asset prices.
If folks get spooked on this idea, you'll want to cut your losses and move to the (relative) safety of cash. But for right now, the trend in coal stocks is up... which makes being long here one of the precious few actionable trading setups in the market right now.
Good trading,
Brian Hunt
Further Reading:
Brian recently told Growth Stock Wire readers about a "one click" way to own a diversified basket of coal stocks. "If this latest breakout is the start of another coal boom," he wrote, "you could make 50%-100% a year." His recommendation is up 7% in the last month. Read more here before it's too late: An Easy, High-Reward, Low-Risk Trade Is Setting Up Right Now.
And for more of Brian's advice on coal, read these recent Market Notes:
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