It’s been few months since the last update on KOL (Market Vectors Coal ETF). KOL was added as a Long-Term Trade Idea back in late Oct with the suggestion to only take a partial position, using a scale-in (buying small lots over time) strategy & only adding the second half of the position on a break above the R1 resistance level. Since the original entry in Oct, KOL has yet to trigger that “full position” buy signal as prices were rejected off the R1 level several times. However, the longer-term scale in strategy may still prove profitable as KOL has been putting in what could be a nice basing pattern from which to launch a new bull market, should prices make a solid & sustained break above the top of the pattern/R1 level. Another potentially bullish development in the sector is the fact that KOL put in a higher low (vs. the June/July low) in early February. This is potentially bullish price action so far as multi-month basing patterns after a powerful bear market, such as the ~66% decline in KOL since the peak in April 2011, typically lead to a more healthy advance vs. V-bottoms. Again, first things first and that would be a solid break above the R1 level/top of the basing pattern. Previous & updated KOL daily charts below:
With KOL not too far above that recent higher low from February, KOL might also provide an objective entry for those without any exposure to the sector. Again, my preference would be a scale-in strategy vs. taking a full position here and as KOL is a Long-Term Trade Idea (description appears just below the top of the page if you go to that category), longer-term traders and investors might consider waiting until a clear breakout above the pattern before taking a full position. Another benefit of initiating a position around current levels is that a stop could be placed on a solid weekly close below the Feb lows, limiting the downside to about 8% while providing an upside potential of better than 40% to the final target (T3, which comes in around 26.20), i.e.- an attractive 5:1 R/R on the trade.