NEW BEARISH Plays

Arch Coal Inc. - ACI - close: 12.89 change: -0.49

Stop Loss: 14.05
Target(s): 10.10
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Coal stocks are getting hammered. Analysts have started to issue downgrades on concerns that coal demand will fall as power plants start switching to cheap and cleaner natural gas instead. Shares of ACI recently broke down to new multi-year lows after churning sideways in a volatile range the last few months.

Being short ACI is a popular trade with short interest already at 16.5% of the 210-million share float. That does raise the risk of a short squeeze should the stock (or industry) suddenly find strength.

I am suggesting we open small bearish positions at the opening bell on Monday with a stop loss at $14.05. Our multi-week target is $10.10. The $10.00 level could be psychological support.

(Small positions)

Suggested Position: short ACI stock @ the open

- or -

buy the Apr $12 PUT (ACI1221P12) current as $0.48

Annotated chart:

Entry on March xx at $ xx.xx
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 9.4 million
Listed on March 03, 2011


AK Steel - AKS - close: 7.76 change: -0.24

Stop Loss: 8.15
Target(s): 7.05
Current Gain/Loss: unopened
Time Frame: 3 to 6 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Basic material names, especially the steel stocks, have been underperforming. AKS had been consolidating near the $8.00 level for a good portion of February but this past week the stock finally broke down. The next level of support is $7.00 and beyond that the 2011 lows.

Being short AKS is a popular trade with short interest at 23% of the 108 million-share float. That does raise the risk of a short squeeze if the stock suddenly sees any strength. Thus readers may want to limit their risk by trading the options instead.

I am suggesting small bearish positions at the opening bell with a stop loss at $8.15. Our initial target is $7.05.

(Small positions)

Suggested Position: short AKS @ (the open)

- or -

buy the Apr $8.00 PUT (AKS1221P8) current ask $0.63

Annotated chart:

Entry on March xx at $ xx.xx
Earnings Date 04/26/12 (unconfirmed)
Average Daily Volume = 7.6 million
Listed on March 03, 2011