Since our original post on the group all the way back on August 9th, the DJ Coal Index has risen 22% vs. only a 3% rise in the SPX – another excellent opportunity for material alpha.
As of today, the group appears to be officially breaking out from a descending wedge pattern b/t lines (1) and (2), as it continues to distance itself from long-term support line (3).
At the same time, the group, on a relative basis vs. the SPX, appears attractive as well, with the ratio of the DJ Coal Index vs. SPX not reaching material resistance until ~15%-20% higher.
With all of the above in play, we continue to believe this group can rally in the absolute sense and out-perform the broader market.
This view is also bolstered by the fact that Nat Gas prices have rallied materially of late, partially ameliorating the pressure on coal prices from utilities substituting toward ever-cheaper Nat Gas over the past year.