Coal Prices: A Buying Opportunity Or A Bearish Signal?

By Ganaxi Small Cap Movers:Most coal mining stocks had a banner day Wednesday, as the broader commodities group soared on news that the world’s central banks led by the U.S. Federal Reserve are coordinating their actions in boosting liquidity in a global effort aimed at easing Europe’s sovereign debt crisis.

ByRobinson Roacho:Coal-producing companies have struggled to gain investors' favor this year. While the S&P 500 has rallied 13% to all-time high levels, coal ETFs such Market Vectors Coal ETF (KOL) has declined 14% YTD. Most of the large holdings in KOL have drastically underperformed both the S&P 500 and the coal ETF (see Figure 1).

Kevin Grewal submits: As emerging markets continue to grow at stellar rates and developed markets continue to rebuild their economies, the demand for coal is expected to increase providing positive price support for the Market Vectors Coal ETF (KOL) and the PowerShares Global Coal Portfolio ETF (PKOL).

By Ganaxi Small Cap Movers:The average coal mining stock, as represented by the Market Vectors® Coal ETF (KOL), is flat YTD after a crippling 33% loss in 2011. The group has been hammered over falling demand due to both the weak global economy as well as competition from cheap natural gas and renewable fuels as a source fuel for electricity generation by utilities.

Last week’s exposure in this weekly ETF Pullback strategy was a bit scary: Two ETFs focusing on the Middle East and two on the U.S. consumer sector. How could I not be concerned that events in Egypt would continue to roil regional equity markets and that a potential spillover into the price of oil would agitate consumer-related equities?As it turned out, Egypt remains tense, but the ETFs did exactly what this technical model hoped they would do: Bounce following a pullback ( see Appendix below for explanation and performance data).

If you’re looking for a way to play China's insatiable appetite for raw materials, without the headaches of owning Chinese companies, look no further than our own domestic metallurgical coal producers Walter Energy (WLT) and Alpha Natural Resources (ANR). Why?

Kevin Grewal submits: Coal is the second largest overall source of energy and has witnessed demand grow at rates higher than oil and natural gas over the past few years and is expected to continue to do so, paving the path to opportunity for the Market Vectors Coal ETF (KOL) and the PowerShares Global Coal Portfolio (

Don Dion submits: Cold weather in China will help the Market Vectors Coal ETF (KOL) and the PowerShares Global Coal Portfolio (PKOL), as both funds have over 20% of their portfolios dedicated to the Chinese coal industry.