The coal sector was hammered badly a few weeks ago. Except WLT, almost every other coal stock has broken down badly. You can take a look at MEE, JRCC and PCX, among which PCX is the weakest. Let’s use PCX as an example. It applies to stocks in general.
Let’s take a look at the daily chart of PCX below. When the bulls see bar 3(Drop 3), they should definitely get out at all cost for 3 reasons
1: It broke the horizontal support line.
2: It broke the trend line.
3: It broke down with a big volume.
We would not know how much further down it would move back then. But we knew one thing for sure. It might take some time for PCX to move back up again. Now we look back and we can see it moved from 7.10 to 5.41, which is a 30% move again. 30% is HUGE if you ask me.
We do not want to buy into consolidation blindly. Like I said before, consolidation only means indecision. For swing trading, it is very important to follow the trend. You can buy into a consolidation only when it is in an uptrend. It is the same for shorting.
PCX is still in a daily downtrend and it is overbought on the 30 and 60 min charts. How would you play it?
Daily Chart (click to have a better view)
60 Min Chart
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