Market Vectors Coal ETF - KOL - $30.70 -0.96

Why We Like It:
The bulls will argue that strong demand from China and India should mean coal stocks are a buy. Yet coal stocks are clearly trending lower. This is probably due to rising concerns over a double dip recession in the U.S., in Europe, and China trying to slow down their own economy. Looking at the KOL ETF you can see that the bullish up trend has been broken. The recent oversold bounce failed at the 50-dma. This also looks like a right shoulder to a bearish head-and-shoulders pattern.

More conservative traders could wait for a breakdown under the $28.00 level as their entry point. I am suggesting bearish positions now. Our first target is $25.50. We will tentatively set a second target at $22.00. I would start off with small positions. You can add to it when KOL confirms the trend with a close under $28.00. I'm suggesting a stop loss at $33.25.

Company Info:

The KOL is an exchange traded fund (ETF) focused on the coal sector. This security tries to mimic the price and yield of the Stowe Coal Index. The top ten holdings in the KOL ETF are: BTU, JOYG, China Coal Energy, China Shenhua Energy, BUCY, ANR, CNX, MEE, WLT, and Yanzhou Coal Mining Co. (source: company press release or website)

- This is a PUT play -

Use the 2011 January PUTS (Entry point - now, at current levels)

BUY PUT 2011 JAN $27.00 strike (KOL1122M27) current ask $2.60

The $27 puts are the lowest strike available for Jan. 2011.

Chart of KOL


Walter Energy - WLT - close: 63.30 change: -2.23

Why We Like It:
We just listed KOL as a bearish LEAPS put play but if you want to get more bang for your buck WLT could be a candidate for you. WLT is much more volatile and offers more reward along with greater risk. Like the KOL trade the long term up trend has been broken. The path of least resistance for WLT seems to be down. Fears of a double-dip recession has spooked investors.

I am suggesting very small positions now. We can add to them later after WLT confirms the trend. We'll use a stop loss at $70.55. Our first downside target is $51.00. Our second target is $42.50. FYI: WLT is due to report earnings on July 28th after the market's closing bell.

Company Info:

Walter Energy is a leading U.S. producer and exporter of premium hard coking coal for the global steel industry and also produces steam coal and industrial coal, metallurgical coke and coal bed methane gas. The Company has revenues of approximately $1.0 billion and employs approximately 2,050 people. (source: company press release or website)

This is a PUT play!

I prefer the 2012 Put LEAPS but 2011's should also work for us.

BUY PUT 2011 JAN $55.00 strike (WLT1122M55) current ask $5.60

- or -

BUY PUT 2012 JAN $50.00 strike (WLT1221M50) current ask $10.20

Chart of WLT


Consumer Discretionary Sector - XLY $30.02 -1.09

Why We Like It:
The consumer is still in trouble. They are worried about their job security and the falling prices of their homes. Consumers are spending less and saving more in the "new normal". The most recent consumer sentiment numbers were a real disappointment. Friday's report could be the catalyst that ignites the next leg down for these stocks. Instead of picking an individual company I'm suggesting the XLY.

I am suggesting bearish positions now. We'll use a stop loss at $32.25. Our first target is $26.00.

Company Info:

The Consumer Discretionary Select Sector SPDR (ETF) is an exchange traded fund with a wide focus on consumer-related companies. Individual components include companies in the automobile industry, consumer durables, apparel, hotels, restaurants, leisure, retailers, and media companies. The top tend holdings in this ETF are: MCD, DIS, Comcast, HD, AMZN, TGT, F, Time Warner, DirecTV, and LOW. (source: company press release or website)

This is a PUT play!

We can use the 2012 or 2011 PUT LEAPS.

BUY PUT 2011 JAN $28.00 strike (XLY1122M28) current ask $1.95

- or -

BUY PUT 2012 JAN $25.00 strike (XLY1221M25) current ask $2.81

Chart of XLY