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Coal – Don’t Try To Catch A Falling Knife

Coal

When a particular market or stocks in a particular industry have been under pressure for a while traders and investors tend to search for some good news. Maybe it is the natural human disposition towards optimism or the inherent love of a contrarian trade, but the worse it gets the more likely a relatively strong rally on anything remotely positive becomes. This can produce great results for those that bought on a “how low can it go?” basis, but for the rest of us it can be a dangerous time. The negatives that caused the drop get forgotten as the narrative changes and it is easy to get swept up in the new optimism and buy in, even long after any value that there may have been has disappeared. That is where we are right now with coal stocks, but investors should resist any such temptation.

Immediately following the election most coal stocks jumped significantly. That was an understandable reaction. After all the President elect described global warning as a hoax perpetrated by China and promised to revitalize the American coal industry if he were elected. Then, as that initial rally quickly faded it was given another boost Mr. Trump nominating Scott Pruitt, a prominent climate change skeptic and legal opponent of the EPA in his role as the Attorney General of Oklahoma, to head up that agency. There could be no clearer message than that the future President Trump intends to foster an environment that is extremely friendly to coal companies.

The problem,…

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