The Stock: Western Coal Recent price: $6.50
Gains by commodity stocks since the end of August have been considerable, and the number of stocks in resource industries with new bullish price trends has surged. The S&P/TSX Metal Mining index is up 33 per cent in the period and the sector has been a major reason the Toronto market has climbed back above its first-quarter peak. But non-base metal mining stocks have put up stellar autumn performances, too - including uranium mining shares after a strong move last week. Not lost in the broader mining rally, though, is the resurgence of many coal stocks.
Market Vector Coal ETF and the Powershares Global Coal Portfolio have fired up 29-per-cent gains during this most recent commodity rally. Component stocks in these funds represent different aspects of the coal industry, but coal miners are the main polish on the group. The coal market's fundamentals are correlated with Chinese economic prospects in particular, and the growth of developing markets in general, so the bullish trends of coal mining stocks relates a positive sentiment from investors about the global economy.
Improved fundamentals for the U.S. coal industry are showing in the stocks of its major producers. Although finishing last week on a soft note, shares of Peabody Energy have advanced in prime technical form, trading a string of six straight weeks of higher highs and higher lows. A similar recent rally in CONSOL Energy and even better performances over the past 13 weeks by the stocks of Alpha Natural Resources Arch Coal and International Coal Group suggests the group will finish 2010 above the resistance that capped industry share prices over the past year.
Canadian coal stocks have shared the upbeat tempo. Integrated miner Teck Resources a current Stock Trends Bullish Crossover stock, announced a new 10-year deal with Canadian Pacific Railway to ship coal from its mines to West Coast terminals, a positive indicator of the company's demand for coal transport capacity. Shares of Grande Cache Coal hit a road bump last week, but are still outperforming the broad Toronto market by 20 per cent over the past three months. The stock of Cline Mining Corp. is also holding on to its big September gains. And surely enjoying the glow of the coal fire is Westshore Terminals Income Fund operating Canada's busiest coal export facility. Its units have been trending positively since the second quarter of 2009 and continue to notch all-time highs.
Western Coal shareholders appreciate the improved conditions. The stock has recovered from a huge setback after shares collapsed from an April high of $6.97, dropping below their previous bullish trend line to eventually find support at the $3.50 level. The mid-year dip is coming full circle, though, as the stock is approaching its first-quarter peak again. The crossover of the 13-week moving average above the 40-week moving average is a Stock Trends signal to review this stock for an intermediate-term trade, but a move to a new 52-week high would be a good trade trigger. Shares dropped to $6.23 early this week, so patience might be in order.
If the industry momentum helps carry this stock through the final months of the year, a move above $7 should deliver a further 15-per-cent gain ahead.
An emerging-market shiver could cool down coal stocks. A drop below $5.50 would be an early signal that this trend trade has derailed.