Partly inspired by our recent trip throughout the West, and also partly inspired by our long position in Teck Resources Limit (TECK), which gained over 11% on Friday while the SPY closed basically flat, coal is the topic for the weekend.
Coal is the major supplier to steel and utilities. Coal-fired electricity plants, despite climate change and moves to reduce coal, still dominates as an energy supplier. China is the biggest producer of coal, with the U.S second. Although there has been a movement towards "clean" coal, the term is a bit of an oxymoron as to get coal, mining for it strips the environment.
Regardless, the photo above is one I took while sitting at a railyard crossing in Livingston, Montana. A train (owned by Warren Buffet-Berkshire Hathaway Santa Fe Railroad) of easily over 100 cars, filled with nothing but coal, stuck with me.
Before we left on vacation, we bought TECK at 11.35. Teck mines, processes, and distributes coal.
The coal ETF (KOL) and TECK (as well as other coal stocks) have underperformed the market by a vast amount. For example, while coal is down over 40% year-to-year, the SPY is up about 10% for the same period.
What made us buy TECK, then?
The chart shows you that when we entered long in early August, the real motion indicator already showed a divergence. Momentum increased (cleared the 50-DMA) before the price did. We put on our long position the day price confirmed into a recuperation phase over the 50-DMA. It was not until this Friday that TECK blasted off, clearing the 200-DMA and entering an accumulation phase.
KOL the ETF is also over the 200-DMA as of Friday. There has been a divergence between price and momentum since early August there as well.
The P/E in coal companies has declined considerably. Companies have lost a lot of money or gone bankrupt. Overall, interest in coal as an investment has waned. Socially conscious investing has brought attention to clean air or solar energy. By the end of 2021, it is predicted that it will be cheaper to build solar plants than to keep active coal plants.
However, we are long First Solar for even longer than we have been in TECK... so SCI yes -- but following the money as coal gets some love, also yes.
Check out this week's Stock Charts TV segment for Mish's Market Minute, titled "Vice Stocks to Watch" - I feature lots of beer and alcohol stocks along with some other picks.
- S&P 500 (SPY): Touched the 50-DMA at 331.65 and held. Needs to hold that and clear 338
- Russell 2000 (IWM): Support down to 146 but under the 50 DMA at 150.75 and in caution phase
- Dow (DIA): Inside day above the 50-DMA -- Boeing got some buying.
- Nasdaq (QQQ): In an unconfirmed caution phase which needs a second close under 270.48. Support at 260
- KRE (Regional Banks): Confirmed bear phase but closed green.
- SMH (Semiconductors): Confirmed caution phase, support 163.58
- IYT (Transportation): Outperformer with 194.67 support (200 pivotal) and 203 resistance
- IBB (Biotechnology): 126-130 range to break
- XRT (Retail): 49.00 the 50-DMA
- Volatility Index (VXX): Went south even more than the market did
- Junk Bonds (JNK): 104.50 support held and closed green
- LQD (iShs iBoxx High-Yield Bonds): Going sideways under the 10-DMA
Mish Schneider
MarketGauge.com
Director of Trading Research and Education
