Alpha Natural Resources - A Short-Term Buy?

| About: Alpha Natural (ANRZQ)

Coal is a sector that is way out of favor. Natural gas near all time lows, china is slowing, and there's a lot of environmental laws ahead. You generally don't want to buy sectors that are laggards in bull markets, because they'll fall even harder in bear ones.

However, as a trader, it's important to be objective and see where the trend is, what the mood is, what the risk reward is, and what catalysts may be up ahead.

Coal has enjoyed a great run up from 2003- 2007 because of the china story, and afterward hasn't done very much except disappoint.

If you look at Alpha Natural Resources (ANR) for example, it looks as if it mirrors the Shanghai index. Major peak at late 2007/2008, crash, smaller peak later, and majorly underperforming now. And it makes sense, even if Alpha Natural Resources doesn't export that much to china, everything is arbitraged in futures contracts so that china's demand will be reflected in Alpha Natural Resources' bottom line. The mood is negative. China is going to slow, the property building will not go on forever.

The stock has been trending down. All moving averages are down. It just broke through very key support at 15.50 and natural support at 15.

Normally huge trends like these have a momentum of their own, and won't end until a major volume down day where all the sellers sell, and the shorters cover. In between that and when the trend ends, will be certain times where the risk reward might be pretty good.

This might be one of these times. Technically speaking Alpha Natural Resources is way oversold. It has fallen too much too fast. There is a lot of value in ANR and if it falls too much, the company will be merger bait. If SPX doesn't crash, the company is merger bait around ~ $12. That should give you some pretty good support. With ANR's volatility (beta of almost 2), the chance that it will bounce is pretty good. Buying now, selling at nearest resistance of $15.50 might work out.

I'll save the catalysts for another article.

Disclosure: I am long ANR.