Hot Coal ETF Reaches a Critical Juncture

The VanEck Vectors Coal ETF (NYSEArca: KOL), which tracks the coal industry, was once left for dead, but this year KOL has nearly doubled and is one of 2016’s best-performing non-leveraged exchange traded funds.

Earlier this y ear, China’s State Administration of Work Safety said working days for coal miners will be cut to 276 per year from 330 as China cut 500 million tons of coal production capacity over the next three to five years, according to Reuters. Mines typically operate 24 hours a day, seven days a week.

Contributing to the surge in coal prices this year, China has drastically curbed its domestic coal production since April. Beijing is limiting the number of days miners can work in an attempt to control a bloated sector. Meanwhile, heavy rainfall across China’s northern coalfields have disrupted local mines and railways.

KOL was one of a small number of ETFs to hit a 52-week high yesterday and while the ETF’s run higher has been mostly unabated this year, some traders see KOL close to encountering its first significant resistance area.

“VanEck Vectors Coal ETF’s run has been as consistent as they come, as the nine month trading channel clearly depicts,” according to an Instinet note posted by Ben Levisohn of Barron’s. “This makes the ETF extended from a daily chart perspective. But the move is barely noticeable from a very long-term view point.”

Looking ahead, the coal industry’s good fortune is ultimately tied to restrictions on China’s output, UBS Group AG said, also raising its coking-coal forecasts for this year and the next.

SEE MORE: Coal ETFs Fire Up on Easing Chinese Production

“So, while standing in front of this trend has proven fruitless thus far in 2016, VanEck Vectors Coal ETF is now approaching the first real resistance zone. The 12 – 15 zone is book ended by a five year downtrend line and the 2013 lows. If VanEck Vectors Coal ETF is going to slow down any time soon, that area seems like a logical place for it to happen,” according to the Instinet note posted by Barron’s.

VanEck Vectors Coal ETF

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