---
title: "Giddy on Coal"
url: https://independentstockanalysis.com/giddy-on-coal/
description: "This weekend everyone was excited over the coal stocks. The charts finally turned and started to improve: ACI , CLD and a chart-fest at FINVIZ . Got Coal?…"
published: 2012-08-13
updated: 2012-08-13
---

# Giddy on Coal

Published 2012-08-13

Posted on

by

J.J. Butler

This weekend everyone was excited over the coal stocks. The charts finally turned and started to improve: [ACI](http://stocktwits.com/message/9079126), [CLD](http://stocktwits.com/message/9078643) and a chart-fest at [FINVIZ](http://finviz.com/screener.ashx?v=211&t=LLEN,ACI,JRCC,ANR,OXF). Got Coal? When “Less Bad” Starts To Work at [Upsidetrader](http://www.upsidetrader.com/2012/08/11/got-coal-when-less-bad-starts-to-work/)garnered a lot of attention. I was told Dan Fitzpatrick is high on coal. Am I too cautious in my patience?

First, note the S&P 500 closed last week above 1400, with the cyclicals actually leading ([Alhambra](http://www.alhambrapartners.com/2012/08/12/theres-something-happenin-here/)). Conversely, denial in the commodity sector? [Market Anthropology](http://www.marketanthropology.com/2012/08/denial.html)

The [*ISA thesis*](https://independentstockanalysis.com/coal-thesis/) continues to be to wait on natural gas. Looks like “U.S. natural gas prices must average in the $2.50 to $3.00 range” through shoulder season at [Raymond James](http://www.raymondjames.com/Branches/c2c/7ho/Whittakercooper/resource.asp?page=energy_stat.htm). Well productivity, associated gas production and the well-count backlog continue to keep natural gas supply high. Look for a turn later this year in the best natty supply read you will find: [RBN Energy](http://www.rbnenergy.com/natural-gas-rig-count-production-and-productivity-kinda-spooky).

Until natural gas normalizes: “We are moving into an environment where coal-fired power plants are only partially base loaded and many are only loaded in an intermediate and peaking basis.” [SNL](http://www.snl.com/InteractiveX/Article.aspx?cdid=A-15604350-12088)

Long term, *ISA* is in the super-cycle camp too. Japan is energy short ([Washington Post](http://www.washingtonpost.com/world/in-japan-energy-saving-takes-its-toll/2012/08/10/3fef736e-dfb3-11e1-8fc5-a7dcf1fc161d_story.html?hpid=z5)). But not right now. Sinking coal prices force major job cuts in Australia at [Mining](http://www.mining.com/sinking-coal-prices-force-xstrata-bhp-and-rio-tinto-to-major-job-cuts-in-australia-20055/?utm_source=twitterfeed&utm_medium=twitter).

US thermal coal is the play, not coking coal. The China slowdown needs to end to turn around steel production ([WSJ](http://online.wsj.com/article/SB10000872396390444184704577586211891758028.html?mod=wsj_share_tweet)). This [Motley Fool](http://beta.fool.com/mockingjay2011/2012/08/12/alpha-natural-resources-8-bucks-or-2-bucks-down/9276/?ticker=BTU&source=eogyholnk0000001)essay unintentionally shows Alpha Natural (ANR) to be in big trouble if met coal holds steady or heads lower.

In the second quarter James River (JRCC) slashed capex to $5 million more than operating cash flow, and it was spun as positive ([Barron’s](http://online.barrons.com/article/SB50001424053111904239304577581281072892976.html?mod=googlenews_barrons)). Ignored was interest expense being at over half cashflow alone. Who are they kidding? When the thermal market does turn, the capital starved players will lose out to the strong.