Friday, April 1, 2011

Coal a Winner on Nuclear Concerns

The ongoing crisis in Japan has cast a shadow on the nuclear industry, and even China has announced plans to look for alternative energy sources. There have been many perceived winners including solar energy and natural gas; however, the coal industry has become a major beneficiary due to current energy infrastructure. The nuclear industry is a major contributor to global electricity generation and this crisis will diminish that contribution. Coal, which already accounts for nearly 45% of electricity supply, is in a good place to make up for the slack left in the nuclear wake.

The coal market has started to anticipate the increased demand as global coal prices have risen since the nuclear crisis. Additionally, the supply side of the equation has been adversely affected due to the flooding in Australia which forced mines to close. This combination is reflected in the great performance in Coal stocks (represented by the KOL ETF).

From the end of June the stocks are up almost 70%. From December to March, as marked by the upper red line and the lower white line, the stocks took a breather in the form of a rectangular consolidation pattern. However, over the last few days the KOL has broken above the red resistance line which signals that the uptrend is likely to continue. Additionally, this breakout occurred on very big volume which is shown at the bottom of the chart. The huge green spike is great confirmation that the breakout is strong and we are happy owners of this position in our aggressive model.