Over the years, the United States has had a love/hate
relationship with coal mining. While we have enjoyed the power
and jobs the industry has supplied, the dangerous conditions for
workers and the pollution created have kept mining companies from
becoming corporate darlings. The current administration has made
it a priority to reduce the country's dependence on coal for
alternative energy supplies
. This mandate from the White House has taken its toll on a
number of mining companies and
Peabody Energy (
is no exception.
Looking at the weekly chart you can see how the
has been in a downtrend for the last four years, but the fact is
the downtrend goes all the way back to 2008. The all-time in June
2008 was $83.72, and now the price is under $20. The stock has
just broken above the downward sloped trendline, but based on
other factors, I think it is a false breakout. One of which is
also visible on the weekly chart and that is the high from last
November-right around the $21 level.
Turning our attention to the daily chart, we see that BTU has
experienced back to back shooting star formations in the last two
days. Just to review, a shooting star happens when the stock
moves higher after the open and then the price falls throughout
the trading day and closes back down near the opening price. It
forms a long tail on the top side with a small body. Looking at
significant tops from November and January, we see that both of
those rallies ended with shooting star patterns being formed at
the top. The stock also experienced a bearish crossover of the
slow stochastic readings which is yet another bad sign for the
The fundamentals show that the decline in price is warranted.
The EPS rating in Investor's Business Daily is eight. This
means that from an earnings perspective Peabody Energy stock has
performed worse than 92% of all
publicly traded companies
over the past few years. The three-year EPS growth rate is
Despite the terrible price action and poor fundamentals for
Peabody Energy, the sentiment toward the stock is still
relatively optimistic. The short-interest ratio is only at 3.4
is in the 56
percentile. Looking at the analyst ratings we see 17 "buy"
ratings, six "holds" and one "sell".
I look for Peabody Energy stock to drop at least 15% in the
coming weeks. I would use a move above the $21 area as a stop.
The risk/reward relationship isn't as strong as I would like, but
given the poor fundamentals, the optimism toward the stock and
the patterns developing on the chart, I fell the probability of a
decline is too great to pass up.
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