B.C.’s Pine Valley open-pit coal mine. Coal remains an integral energy source for increasingly busy steel makers.
The Stock Grande Cache Coal Corp.
Recent price $3.91
Trend Coal stocks have traded actively in the past month as investors become more committed to the global economic recovery story.
Feeding the furnaces of steel makers, coal miners are at the top of the industrial food chain and are quick to signal the health of the manufacturing sector.
Maligned by green voices and policy makers, coal remains an integral energy source.
The Chinese coal market now factors significantly in the price of coal, which is at its highest level in a year.
Huge infrastructure spending has been a big driver of the Chinese appetite for steel and has heightened the demand for global coal resources.
The Powershares Global Coal Portfolio exchange-traded fund has outperformed the broad market by 7 per cent over the past three months, with some U.S. coal stocks particularly fired up - shares of Alpha Natural Resources advanced 40 per cent over the period, while Massey Energy shares increased 55 per cent.
The Trade After diversified miner Teck Resources, the busiest metallurgical coal stocks on the TSX are Western Canadian Coal and Grande Cache Coal, both currently trading around 20,000 times a week.
Retail traders have a nose for these coal plays and have bargained that economic recovery is real, despite nervous hiccups along the way.
Both stocks turned Stock Trends Bullish in June and have similar chart patterns.
After last Monday's market tumble, Grande Cache shares recovered their footing and salvaged a minor loss on the week.
The company is now trading around the $4 level - a bullish stance here about Chinese industrial capacity favours further price momentum.
Canadian investors can leverage their emerging market exposure with this Canadian small-capitalization foray into Chinese energy demand.
The Upside Grande Cache's sales volume increases contributed substantially to its rising earnings in the most recent fiscal quarter and should help fuel the next stage of the stock's bullish trend.
During the stock's aggressive bull trend in the first half of 2008, Grande Cache rocketed from penny stock status to $10.78 before the bubble burst and a bear market took hold, sending the stock from whence it came before the year was up.
Investors need not get ahead of themselves again, but a $6 price objective would be reasonable.
In GCE's big rally in the spring of last year, the stock's relative price momentum peaked when shares hit $6.
This is a 50-per-cent lift above the current price - a hefty return that only comes with equal risk.
The Downside This stock is already advanced well above trend line support, so investors should employ a hard stop - selecting a stop loss price that exits this trade if the market fails to move as anticipated.
The stock's advance to $3.15 on high volume a month ago is a good marker, although it may trigger a sell in volatility.
Nevertheless, investors who chose to trade high-momentum small cap stocks should always monitor for adverse moves and be prepared to take a prescribed loss - like the 20-per-cent drop implied in a stop loss at $3.15 - rather than risk more substantial losses.
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to http://www.stocktrends.ca/