Potential trade idea: sell Whitehaven Coal

Coal has rallied solidly over the past six weeks, which in turn has pushed Whitehaven Coal back towards its October highs.

Coal
Source: Bloomberg

With this in mind, I have revisited the likely outlook for thermal coal. I still see thermal coal coming to the end of its cycle in the energy complex; there will certainly still be a need for it, however 2011 prices look to be a thing of the past.

In the interim, talk around uranium and gas is likely to drain liquidity that would have flowed through to thermal coal.

With this in mind, and despite the fact that management has delivered on some projects, the breakdown of the technical levels, the outlook for thermal coal, earnings and WHC’s debt levels are likely to see the share remaining under pressure. Any slide in the coal price is likely to take WHC with it.

Key stats:

  • FY15 EPS: -0.08c (from -0.04 FY14)
  • Net operating profit: -$14.70 million from -$5.65 million FY14
  • Net debt to rise to $985.07 million in FY15 from $685.22 million
  • Sales to expand to $828.88 million

The potential trade:

The chart is clearly showing WHC is seeing strong resistance at $1.70; the ride up the top Bollinger band has been broken and it has returned to the 20-day moving average and is heading towards the bottom Bollinger band. The RSI and Stochastic indicators are also showing that weakness is moving into the stock.

I would potentially sell at current price with a stop loss around $1.80, a clear break above the $1.70, resistance level, and I would be looking for support around $1.50. However, I see WHC likely overshooting and heading lower still to $1.30. I would potentially put a limit at the support level of 

WHC chart

WHC chart
IG charts

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