{"id":14033,"date":"2012-09-17T23:03:01","date_gmt":"2012-09-18T06:03:01","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=14033"},"modified":"2012-09-17T23:03:01","modified_gmt":"2012-09-18T06:03:01","slug":"qe2-reference-price-identifies-strongest-iron-ore-metallurgical-coal-plays","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2012\/09\/17\/qe2-reference-price-identifies-strongest-iron-ore-metallurgical-coal-plays\/","title":{"rendered":"The QE2 Reference Price Identifies the Strongest Iron Ore and Metallurgical Coal Plays"},"content":{"rendered":"<p><strong>(This is an excerpt from an article I originally published on Seeking Alpha on September 16, 2012. <a href=\"http:\/\/seekingalpha.com\/article\/869761-the-qe2-reference-price-identifies-the-strongest-iron-ore-and-metallurgical-coal-plays\" target=\"_blank\">Click here to read the entire piece<\/a>.)<\/strong><\/p>\n<p>Last week, <a href=\"http:\/\/seekingalpha.com\/article\/856571-using-the-qe2-reference-price-to-buy-freeport-mcmoran\" target=\"_blank\">I demonstrated how the timing of QE2 provided a useful reference point for buying Freeport-McMoran (FCX)<\/a> as part of a coming revision of <a href=\"http:\/\/seekingalpha.com\/article\/278697-profiting-from-physical-assets-in-a-resource-constrained-world-rules-and-picks\" target=\"_blank\">the commodity crash playbook<\/a>. In this piece, I show how the QE2 reference price can be used to separate the stronger from the weaker plays on iron ore and metallurgical coal (also called coking coal). The QE2 reference price has not served as a floor for most of the stocks in this space. This behavior served as an important reminder that the QE2 reference price served as <strong>the starting point<\/strong> for buying into a crash\/sell-off. The good news is that using this reference price significantly improved the risk\/reward of trading these stocks&#8230;{snip}&#8230;<\/p>\n<p>{snip}<\/p>\n<p><center><br \/>\n<figure id=\"attachment_14157\" aria-describedby=\"caption-attachment-14157\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_BHP-closeup.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_BHP-closeup.png\" alt=\"BHP bounces as its QE2 reference price now looks like firm support\" title=\"BHP bounces as its QE2 reference price now looks like firm support\" width=\"500\" height=\"350\" class=\"size-full wp-image-14157\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_BHP-closeup.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_BHP-closeup-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-14157\" class=\"wp-caption-text\">BHP bounces as its QE2 reference price now looks like firm support<\/figcaption><\/figure><br \/>\n<br \/>\n<figure id=\"attachment_14158\" aria-describedby=\"caption-attachment-14158\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_BHP.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_BHP.png\" alt=\"The weekly chart helps show how well the QE2 reference price has held up\" title=\"The weekly chart helps show how well the QE2 reference price has held up\" width=\"500\" height=\"350\" class=\"size-full wp-image-14158\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_BHP.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_BHP-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-14158\" class=\"wp-caption-text\">The weekly chart helps show how well the QE2 reference price has held up<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>BHP&#8217;s relative resilience likely comes from its well-diversified mining operations across many commodities and many countries. So while I sold off a few commodity-related plays into Friday&#8217;s rally, I decided to hold firm to BHP. {snip}<\/p>\n<p><center><br \/>\n<figure id=\"attachment_14160\" aria-describedby=\"caption-attachment-14160\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_RIO.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_RIO.png\" alt=\"RIO finally bounces away from its QE2 reference price\" title=\"RIO finally bounces away from its QE2 reference price\" width=\"500\" height=\"350\" class=\"size-full wp-image-14160\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_RIO.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_RIO-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-14160\" class=\"wp-caption-text\">RIO finally bounces away from its QE2 reference price<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>Given my longer-term bullishness on Brazil, I continue to build my position in VALE. {snip}<\/p>\n<p>While BHP has operations in metallurgical coal, the companies in focus for met coal are Cliffs Natural Resources Inc Co (CLF), Alpha Natural Resources, Inc (ANR), Walter Energy, Inc. (WLT), and Consol Energy (CNX). Of this list, only CNX has survived the QE2 support test, thus making it the best pick of the bunch. {snip}<\/p>\n<p><center><br \/>\n<figure id=\"attachment_14165\" aria-describedby=\"caption-attachment-14165\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_CNX.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_CNX.png\" alt=\"Consol Energy bounced nicely off its QE2 reference price in 2011 but has struggled to remain above support in 2012\" title=\"Consol Energy bounced nicely off its QE2 reference price in 2011 but has struggled to remain above support in 2012\" width=\"500\" height=\"350\" class=\"size-full wp-image-14165\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_CNX.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_CNX-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-14165\" class=\"wp-caption-text\">Consol Energy bounced nicely off its QE2 reference price in 2011 but has struggled to remain above support in 2012<\/figcaption><\/figure><br \/>\n<figure id=\"attachment_14167\" aria-describedby=\"caption-attachment-14167\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_CLF.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_CLF.png\" alt=\"Cliffs dropped as much as 40% below its QE2 reference price this year before bouncing over 40% from the lows\" title=\"Cliffs dropped as much as 40% below its QE2 reference price this year before bouncing over 40% from the lows\" width=\"500\" height=\"350\" class=\"size-full wp-image-14167\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_CLF.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_CLF-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-14167\" class=\"wp-caption-text\">Cliffs dropped as much as 40% below its QE2 reference price this year before bouncing over 40% from the lows<\/figcaption><\/figure><br \/>\n<figure id=\"attachment_14168\" aria-describedby=\"caption-attachment-14168\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_WLT.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_WLT.png\" alt=\"Walter Energy has &#039;only&#039; jumped 27% off recent lows after plunging 56% below its QE2 reference price\" title=\"Walter Energy has &#039;only&#039; jumped 27% off recent lows after plunging 56% below its QE2 reference price\" width=\"500\" height=\"350\" class=\"size-full wp-image-14168\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_WLT.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_WLT-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-14168\" class=\"wp-caption-text\">Walter Energy has &#039;only&#039; jumped 27% off recent lows after plunging 56% below its QE2 reference price<\/figcaption><\/figure><br \/>\n<figure id=\"attachment_14169\" aria-describedby=\"caption-attachment-14169\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_ANR.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_ANR.png\" alt=\"Alpha Natural Resources has been a complete disaster, breaking through the former all-time low in May of this year\" title=\"Alpha Natural Resources has been a complete disaster, breaking through the former all-time low in May of this year \" width=\"500\" height=\"350\" class=\"size-full wp-image-14169\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_ANR.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2012\/09\/120914_ANR-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-14169\" class=\"wp-caption-text\">Alpha Natural Resources has been a complete disaster, breaking through the former all-time low in May of this year<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>Notice that with the exception of the disaster that is ANR, the first QE2 purchase for each of these iron ore and met coal plays eventually yielded great gains in 2011. At the time, I sold all of them because the anticipated crash in Chinese demand had not yet come. {snip}<\/p>\n<p>In other words, this latest round of stimulus spending is far from a done deal. {snip}<\/p>\n<p>Shorts are also coming after iron ore plays. {snip}<\/p>\n<p><center><br \/>\n<object id=\"cnbcplayer\" height=\"380\" width=\"400\" classid=\"clsid:D27CDB6E-AE6D-11cf-96B8-444553540000\" codebase=\"http:\/\/download.macromedia.com\/pub\/shockwave\/cabs\/flash\/swflash.cab#version=9,0,0,0\" ><param name=\"type\" value=\"application\/x-shockwave-flash\"\/><param name=\"allowfullscreen\" value=\"true\"\/><param name=\"allowscriptaccess\" value=\"always\"\/><param name=\"quality\" value=\"best\"\/><param name=\"scale\" value=\"noscale\" \/><param name=\"wmode\" value=\"transparent\"\/><param name=\"bgcolor\" value=\"#000000\"\/><param name=\"salign\" value=\"lt\"\/><param name=\"flashVars\" value=\"startTime=000\"\/><param name=\"flashVars\" value=\"endTime=000\"\/><param name=\"movie\" value=\"http:\/\/plus.cnbc.com\/rssvideosearch\/action\/player\/id\/3000113855\/code\/cnbcplayershare\/&#038;startTime=167\/&#038;endTime=442\" \/><embed name=\"cnbcplayer\" PLUGINSPAGE=\"http:\/\/www.macromedia.com\/go\/getflashplayer\" allowfullscreen=\"true\" allowscriptaccess=\"always\" bgcolor=\"#000000\" height=\"380\" width=\"400\" quality=\"best\" wmode=\"transparent\" scale=\"noscale\" salign=\"lt\" src=\"http:\/\/plus.cnbc.com\/rssvideosearch\/action\/player\/id\/3000113855\/code\/cnbcplayershare\/&#038;startTime=167\/&#038;endTime=442\" type=\"application\/x-shockwave-flash\" \/><\/object><br \/>\n<\/center><\/p>\n<p>In the meantime, industry is quickly moving to cut capacity which should help put a floor under future prices. {snip}<\/p>\n<p>Be careful out there!<\/p>\n<p><strong>(This is an excerpt from an article I originally published on Seeking Alpha on September 16, 2012. <a href=\"http:\/\/seekingalpha.com\/article\/869761-the-qe2-reference-price-identifies-the-strongest-iron-ore-and-metallurgical-coal-plays\" target=\"_blank\">Click here to read the entire piece<\/a>.)<\/strong><\/p>\n<p>Full disclosure: long VALE, BHP, ANR<\/p>\n","protected":false},"excerpt":{"rendered":"<p>(This is an excerpt from an article I originally published on Seeking Alpha on September 16, 2012. Click here to read the entire piece.) Last week, I demonstrated how the timing of QE2 provided a useful reference point for buying Freeport-McMoran (FCX) as part of a coming revision of the commodity crash playbook. In this &#8230; <a title=\"The QE2 Reference Price Identifies the Strongest Iron Ore and Metallurgical Coal Plays\" class=\"read-more\" href=\"https:\/\/drduru.com\/onetwentytwo\/2012\/09\/17\/qe2-reference-price-identifies-strongest-iron-ore-metallurgical-coal-plays\/\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[386,181,4,199,59,44],"tags":[468,631,465,466,634,686,685,1034,676,1035,1033,692,48,661,694,662],"class_list":["post-14033","post","type-post","status-publish","format-standard","hentry","category-australia","category-brazil","category-china","category-commodities","category-economy","category-steel","tag-anr","tag-bhp","tag-clf","tag-cliffs-natural-resources-inc","tag-cnx","tag-coal","tag-commodities-crash-playbook","tag-consol-energy","tag-iron-ore","tag-metallurgical-coal","tag-qe2","tag-rio","tag-stimulus","tag-vale","tag-walter-energy-incorporated","tag-wlt"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>The QE2 Reference Price Identifies the Strongest Iron Ore and Metallurgical Coal Plays - ONE-TWENTY TWO: Trading Financial Markets<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/drduru.com\/onetwentytwo\/2012\/09\/17\/qe2-reference-price-identifies-strongest-iron-ore-metallurgical-coal-plays\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The QE2 Reference Price Identifies the Strongest Iron Ore and Metallurgical Coal Plays - ONE-TWENTY TWO: Trading Financial Markets\" \/>\n<meta property=\"og:description\" content=\"(This is an excerpt from an article I originally published on Seeking Alpha on September 16, 2012. 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ONE-TWENTY TWO: Trading Financial Markets","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/drduru.com\/onetwentytwo\/2012\/09\/17\/qe2-reference-price-identifies-strongest-iron-ore-metallurgical-coal-plays\/","og_locale":"en_US","og_type":"article","og_title":"The QE2 Reference Price Identifies the Strongest Iron Ore and Metallurgical Coal Plays - ONE-TWENTY TWO: Trading Financial Markets","og_description":"(This is an excerpt from an article I originally published on Seeking Alpha on September 16, 2012. Click here to read the entire piece.) Last week, I demonstrated how the timing of QE2 provided a useful reference point for buying Freeport-McMoran (FCX) as part of a coming revision of the commodity crash playbook. In this ... 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