Peabody Energy's Painful Downtrend Still Offers Opportunity to Trade

Tickers in this article: BTU

NEW YORK (TheStreet) - Shares of Peabody Energy have not performed well over the last five or six years under the dirty clouds that President Obama wants to clarify with new rules of the Clean Air Act, which became a focus on June 2.

On June 2, TheStreet's Deputy Managing Editor Carlton Wilkinson wrote, Coal Shares React Positively to EPA Emissions Rules, but shares of Peabody, the world's largest coal producer moved sideways at best for the remainder of the week.

On June 3, Wilkinson followed with, Coal Mulls Threat From EPA Emissions Reductions where he discussed the reactions from Wall Street analysts knowing that the Environmental Protection Agency proposes that power plants reduce carbon emissions by 30% by 2030.

On June 4, he wrote about another wrinkle to the story in, Peabody Faces Risk From 'Peaking' Coal Demand in China, which could put additional pressure on the stock despite the company's participation in developing a clean-burning technology.

All of this news has been playing havoc with Peabody shares for quite some time so let's take a look at daily and weekly charts for the stock and set "buy and trade" strategies for investors and traders.

Courtesy of MetaStock Xenith

The daily chart shows that Peabody Energy ($16.34) is oversold with the stock below its 21-day, 50-day and 200-day simple moving averages at $17.62, $17.53 and $17.82. The stock traded as low as $15.18 on March 20 and as high as $19.63 on May 12, crisscrossing these key moving averages.

Courtesy of MetaStock Xenith

The weekly chart for Peabody shows that the stock was in a parabolic bubble that popped from an all-time intraday high at $88.69 in July 2008. Peabody bottomed At $16.00 in November 2008.

The stock returned to being a momentum play trading as high as $73.95 on April 2011 and has been moving sideways to down since then crossing below its 200-week simple moving average in September 2011. This moving average is now at $33.64 as a strong resistance.

The weekly chart is negative with its five-week modified moving average at $17.20. Our quarterly value level is $10.74 with monthly and semiannual risky levels at $18.19 and $21.45, respectively.

Investors looking to buy should consider using a "good 'til cancelled" (GTC) limit order to buy weakness to the YTD low at $15.18. If you buy current levels, look to book profits using a GTC limit order to sell strength to the monthly risky level at $18.19.

Keep in mind that in July we will have new monthly, quarterly and semiannual level and that will be the time to revise this "buy and trade" strategy.

At the time of publication the author held no positions in any of the stocks mentioned.

Follow @Suttmeier

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff