KOL and Coal Diverge

Here I have shown the charts for coal (the commodity) and KOL (the ETF). KOL has been one of my favorite performers over the past few months, for obvious reasons. However, KOL is composed of the stocks of companies that sell or mine coal, whereas the coal futures represents that price of coal, the commodity. Prices of companies in an industry don't always perfectly trace the prices of the commodity that fuels that industry. KOL's price has continued to rise, despite the fact that the commodity coal topped out last week, with four consecutive days without a price rise and sharply lower closes in the past two days. This is undoubtedly related somewhat to the collapsing price of crude oil (over the past week), a competing energy source. Something must give between the coal (the commodity) and KOL (the coal industry ETF) soon.

Until the price of the commodity begins to rise again, I have placed tight stops beneath the lows of the KOL ETF. If coal continues to move lower, I will probably be stopped out of KOL with a very healthy profit within the next few trading sessions. If the price of the commodity begins to rise again, I will back off my stop and continue to watch the price rise even further.

KOL (coal industry ETF)

Coal (commodity futures)

The United States, with enough confirmed coal reserves to last at least 200 years at current consumption rates, has 25% of all the world's coal reserves. The United States has more coal that the rest of the world has in equivalent petroleum-based energy reserves. In the United States, 38 states have large, confirmed coal deposits.

Why are we not developing and using clean coal? The industry has invested more than $50 billion to create technologies that make coal a clean-burning energy source, but so far, all attempts to use it have been blocked by overzealous politicians and obstructionist environmental groups. I am personally in favor of good environmental laws. Who wants to live with dirty air? Unfortunately, however, some groups have used these laws to bring all natural resource development to a complete standstill. This was never the intent of these laws. Certainly, it is time for the United States to strive for a reasonable balance between resource development and a stewardship over a clean environment.