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Coal … no one seems to like it. After all, it’s dirty energy compared to “clean” natural gas.

However, that’s no reason to write coal off. After all, Europe is using more coal lately and Japan will begin to use coal in place of nuclear power starting in 2013. So even though we’re making some changes here, other major countries are ramping up their use of coal. And, by the way, we still have more coal-fired plants here in the U.S. than natural gas powered plants.

Coal is still a viable source of energy … yet the market has gone negative on it. I call it a “point of maximum pessimism.” I believe it reached this in late July, as the downward slide-off accelerated and volume doubled its daily average.

But from that point on, I noticed coal began to hold the line even though the news was still just as negative as it ever was. That gets my attention on any asset, no matter how bad it gets bashed in the news.

So let’s take a look below, and I’ll show you how I just closed out a trade for a 143% gain for my Commodity Trend Alert subscribers.

Expecting the Unexpected

See larger image

You see, when any asset has been in a downtrend for a long time and is getting bashed heavily at the moment, its options are usually pretty cheap. That was appealing to me.

The stock, Peabody Energy (BTU), had made a recent “higher high” and “higher low.” So I put it on my radar. Once it pulled back towards its 50-day simple moving average (SMA), I bought it while the options were still dirt cheap. Then, I set a mental price target for when it hit the declining 200-day SMA (red line) above. Why?

Typically, a stock will fail to effectively breach the 200-day SMA on its first attempt in quite a while.

So within a few short weeks, BTU rose from its inclining, 50-day SMA line (blue) to its declining 200-day SMA line and we took profits. The stock ran from about $22 to over $27, a respectable 24% return in that short amount of time.

However, we owned the call options on BTU and they racked up a 143% gain for us! So if you can catch a trend near its turn-around point, a lot of ground can be made in a very short amount of time. That’s the first lesson.

The second lesson is just because the masses count an asset or sector out … doesn’t mean you should too. Keep an open mind and see if there are still profits to be made from that asset or sector. Chances are, there are and that the masses have done what they always do and overreacted.

Have a nice day!


Sean Hyman
Editor, Commodity Trend Alert

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