As I often state in my newsletters, it never hurts to have stocks in your watch list that present you with trading opportunities regardless of what direction the market heads. On one hand, you may think the market is heading higher, but on the other hand; the market always reserves the right to change its mind! One such stock that may fit that description of giving you a trade either way would be that of Alpha Natural Resources.
Alpha Natural Resources, Inc. is a coal supplier in the United States. The company is a supplier and exporter of metallurgical coal for use in the steel-making process, and a supplier of thermal coal to electric utilities and manufacturing industries. It operates 66 mines and 13 coal preparation plants in Northern and Central Appalachia and the Powder River Basin. Alpha Natural Resources operates in two segments: Eastern Coal Operations and Western Coal Operations. Eastern Coal Operations consists of the mines in Northern and Central Appalachia, its coal brokerage activities and the company’s road construction business. Western Coal Operations consists of two Powder River Basin mines in Wyoming.
To review Alpha Natural Resources’ stock, please take a look at the 1-year chart of ANR (Alpha Natural Resources, Inc.) below with my added notations:
ANR has created a couple of short-term price levels over the last month. First, ANR has formed a clear resistance area at $35 (red). In addition, the stock has also been climbing a short-term, up-trending support level (green), which it has now tested (3) different times. These two levels combined have ANR stuck within a common chart pattern known as an Ascending Triangle that will eventually have to break one way or another. The volume drying up (blue) as the pattern forms is the “calm before the storm” that usually precedes the breakout.
A break above $35 should signal higher prices for ANR, but were the stock to break the up trending support line instead, ANR will most likely hit new 52-week lows.
The Tale of the Tape: ANR is currently stuck between two very important levels for the stock: The up-trending support and the $35 resistance. A long trade could be made on a break above the $35 level with a stop placed under the level. On the other side, you could enter a short trade on ANR if the stock breaks below the up-trending support level. In that case, a stop should be placed above the level of entry.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT