We’re going to open with a look back at the top of the silver market in 2011.
Well, not just because we nailed it with our superior technical eye, with our ear for the subtlest market harmonics and our insouciant visage.
More than that.
The truth is we want to show you a perfect, technical mirror-image of what we saw in the charts for silver exactly five years ago.
And on the way, not to worry, we’ll refrain from boring you with reminders of the exactitude of our ongoing bearish calls on the precious metals, or how we’ve been oh-so right despite the cat-calls and caterwauls from the gold-buggery crowd. Oh, we weathered quite a few tomatoes (and not a few raspberries) from that crowd on our way to anti-precious metals riches. But that’s for another time.
We did what we did – and still do – solely for the edification and further wealth generation of our loyal readership.
And with that in mind, have a look here –
In April of 2011, precisely as silver was blowing its top, we wrote a piece called Buying Long Dated Silver Insurance, in which we revealed to you the above three charts on the iShares Silver Trust ETF (NYSE:SLV), a proxy for the grayer bullion.
The news we broke was a barnstormer. We informed you on the 25th of that month – just as silver was climaxing – that SLV had posted overbought RSI levels on all three of its daily, weekly and monthly charts, a development that, in our view, all but cooked the cake, spread the cheese and tickled the mud flaps.
In short, the party was over.
At the time, we advised everyone to go short, and today, we urge one and all to go back and revisit our razor-like analytics and hammerhead wit.
Ahhh, Emile… Emile. The true hammerhead.
A Dirty Turn For the Miners
Well, as we said before – we’re not geniuses for nothing.
If the three overbought daily, weekly and monthly charts on SLV led to a five year bear market for silver, then what would you make of three oversold RSI reads on the daily, weekly and monthly charts of a completely different stock?
Would you consider it meaningful?
Would you consider buying that stock?
Would you consider us geniuses, and want desperately to send us your most valued domestic knick-knacks? Your best rum? Your women? A bowl of vichysoisse?
Alright, alright, we’ll get down to it. It’s coal.
There, it’s out.
Now have a look at a daily chart of the Market Vectors Coal ETF (NYSE:KOL).
Taken alone, the daily chart paints a picture of reasonable strength. After a decline of some five years, in which the coal miners gave up over 90% (!) of their value, both RSI and MACD (in green) began diverging higher before the share price bottomed and began its own ascent.
RSI was also twice in oversold territory for an extended tenure in both December and January (orange circles).
Now, that’ s not the first time that has occurred in KOL’s slow, dirty dig to the bottom of this mine shaft, but have some patience, brother! Patience!
Look also at price breaking above its 137 day moving average, a line that we consider ultimately important in our studies (enlarged, in black). Not only did she conquer that line some two weeks back, but it appears a successful retest was made just this week, opening the door for further gains and an assault on the 274 DMA at $975 (in orange).
Volume also appears to be picking up, though we’d like to see more action there before we start kicking Virgil in the feathers.
Add the Weekly
Look now at KOL’s weekly chart –
Here, too, it’s the Relative Strength Index’s (RSI) excruciatingly long oversold reads that light up the senses (in ornge). What the hell is a stock doing for three months under the 20 line!?
Yet so it was. And it hails the rebound we’re seeing now.
Weekly RSI has now popped above its midway waterline (in blue), indicating to us that a shift is underway that will likely continue for some months at least.
Again, the only worry is volume.
There ain’t enough of it.
Monthly Chart Hat Trick
That said, it’s a rarity that we witness all three time charts offering extreme RSI reads, a signal we’ve come to love, and to trade as a near certain intermediate trend reversal signal.
And so, without further ado, KOL’s monthly chart –
There’s little more to be said once these three oversold RSI reads are lined up against one another. Our best initial take is that KOL should see a significant rise over the next one to three years.
And we’re putting our money where our organ meats are, opting for a long-term bullish trade on the sector, despite the fact that the biggest coal miner in the country, Peabody Energy (NYSE:BTU) just announced that it would not make payment on $71 million in interest, payable March 15th.
No big deal.
That, dear friends, is what’s known as noise. As were the bankruptcy filings of Arch Coal (NYSE:ACI) and Alpha Natural Resources (NYSE:ANR) and many others before them.
The truth is, we’ll never stop using coal. It’s too cheap and too abundant to let go entirely. Yes, it’s a bit dirty, but technologies are being developed to make it less so. And wind and sun power are still a long way from replacing the lumpy black stuff.
The turn is here.
[mepr-rule id=”994″ ifallowed=”hide”][mepr-unauthorized-message][/mepr-rule]
[mepr-rule id=”204″ ifallowed=”show” description=“options_trader_elite_members_only”]
[mepr-rule id=”988″ ifallowed=”show” description=”executive_lounge_members_only”]
Options trader Elite recommends you consider purchasing the KOL October 8 CALL for $0.90 and selling the KOL October 8 PUT for $0.80. Total debit on the trade is $0.10 per pair traded.
October is as far out as we can go on this one.
Many happy returns,