Walter Energy Inc. WLT is a producer & exporter of "Metallurgical Coal", (the kind used by the Steel Industry to produce iron & steel), though they mine other types of coal also. The company currently have a market cap of about 810M, trading on the NYSE. WLT headquarters is in Birmingham, AL. Some other companies accompanied with WLT, in the Energy-Coal Sector are Arch Coal (ACI), Alpha Natural Resourse (ANR), Peabody Energy (BTU), to name a few.
On Monday, June 17th, WLT showed up on my stock filter, after getting slammed over 17%, on news that it "withdrew from a loan to refinance its debt". It was bad enough already that coal stocks in general have been on a long, steady decline, due to lower demand for coal, & lower prices. Many of the coal producers, have been forced to produce less coal, due to a lack of demand from its customers in the Steel Industry, who themselves, have been hit by a slow moving economy, but have managed to mitigate costs, by switching from the use of coal to natural gas, to produce their products. Natural gas reserves were plentiful, & the price became cheaper than the price of coal, in their equivalency to do the work needed.
Below is a 4 day, 5 min candle chart of WLT's action, after falling steeply on Monday. I have outline points on the chart of where I've entered & exited my trades. This style that I've adopted, is called "buy the dips & sell the quick rips". So far, WLT have given me some good looks, and have moved in my favor.
4 day, 5 min candle chart with notes:
The Trades:
My initial position filled at $12.50, at which point, I was hoping the stock would go higher, but the stock continued to move lower, and seemed to find it's footing around $11.25 or so. At this point, I was quickly down about 10%. Normally if I'm down 7% or so on a stock, and it shows no sign of recovering, I cut the loss, then regroup on another play. This time, I decided to hold WLT, a little longer. My position size was manageable (which is key), so I was OK a few more % lower, if that would have been the case. As the stock continued lower, on volume, there were a few green candles popping, as if their was a tug of war, between sellers & buyers. At around $11.25, the stock started to move sideways. If it would have fell through and continued lower, then I would have hit the sell button, and endured the loss. I also had another plan. If the stock tried to reverse, I was going to take on another position, so that's what I did. The stock bounced pretty hard upward, at which point, I bought the same amount of shares, as the initial position. If the stock failed to continue higher, then I would have sold both positions. Keep in mind, that at $11.60, my initial position was now about a 7% loss instead of 10%, so I was heading in the right direction. It was a risk, but one I was willing to take, because I believed the stock was going to reverse higher from this point, in which case I was later rewarded. So now I'm sitting on WLT $12.50 entry & WLT again $11.60 entry. I call it "loaded"; go or blow.
The session ended that day with WLT resting at $11.70. Not bad, still down $0.80 on my initial purchase, but up $0.10 on the second. The stock was up nicely in AH trading, so the opening price the next day looked promising (but that doesn't mean a thing). The next day, I looked at PM quotes, and the stock was trading higher (popping), from the prev. close. I was in business now. The stock opened 5.6% higher than the prev. close. I was ready to sell this thing, after the top of the opening burst, which I did at $12.80. Boom! I sold my initial for +2.4%, and the second for +10.3%. I wasn't through yet. I was expecting the stock to reverse, and head lower. I thought to myself, I was willing to buy WLT again, if it pulled back to about $12, but the stock quickly started catching bids. The volume was pouring in, so here we go again... "risk/reward" with a tight stop, just in case it fail. Besides, at this point, I'm playing with house money.
The stock started to move higher, on increasing volume, so I re-entered the stock at $12.98 around 10:30 that day. WLT was on a roll & kept climbing to about $13.75 where it peaked. Boom! I'm up another +6% almost, on top of the first 2 gains. I had my eye set on WLT quickly moving back to $15, which I took for a target. The stock held strong, with big volume towards the end of the session, so I decided to hold it over night. WLT closed at $13.63, so I'm up right at +5%. The plan now was to ride this puppy higher, if it did so, or sell into weakness, using the prev. close as a reference point.
Today (6-19) the stock was up slightly in PM. It opened higher, but quickly began to change course, at which point, I hit the sell button. The sell price filled at $13.79, which was a +6.2% gain (very nice). I still wasn't done with WLT yet. The stock pulled back to about 13.15, then began to move somewhat sideways. Then the stock popped up with nice volume, so I entered the stock for another run at $13.20. The reversal was only good for about $0.50, then it reversed course again, moved lower to about $12.85. OK, I'm down about 2.6%, which was not bad, plus my position size was 25% less than the ones before, because now I'm looking to hold the stock for the long haul, to that $15 target I sighted, and oh yeah, I'm playing with house money (+2.4%, +10.3% & +6.2% respectively). Around 2pm, the stock started to show some signs of moving up, so I increased my position; bought an equal amount at $13.19. The stock closed the session at $12.96, so I'm down -1.8%. Again not bad. Will have to see what tomorrow brings. I'm excited.
6 Month chart with notes:
Observation:
I want to point out, in the above chart, a few things that's giving me reason to think the stock will reverse to the upside. Notice how the stock has slowly drifted lower over time. Then all of a sudden, it falls hard on bad news on 3x average volume. The next day's candle & volume is the focal point. After the big plunge in price, with massive volume the first day, the second day have even higher volume, than the prev. session, but the price doesn't vary much, though it close red. That is the day, to buy the stock off it's session lows, or wait until the next day to confirm the reversal (which will minimize the risk, but lower the potential reward).
We see that on the 3rd day the stock opens higher, & moves big, on again, big volume. I've seen this actions in numerous stocks over the years, though the pattern isn't absolute, however it is likely. I call this, the "draw down, then snap back move". Sure it's risky, and again, it isn't absolute, but something to take notice of.
Will post an update, on my outcome......
Note: Trade at your own risk. This is not trade advise, but notes from my own experience & observations.
