Even Trump Can’t Save Coal Miners…

Clean coal is dead.

Trump’s latest budget proposal is slashing funds for clean coal research.

“The Energy Department has spent more than $200 million a year on research into ways to capture and store the carbon dioxide emitted when coal is burned to make electricity,” Bloomberg reports. “Under Trump’s proposal released Tuesday that would be cut to $31 million, an 85 percent reduction.”

So much for saving the coal miners…

Less than two months ago, Trump ended the war on coal with the stroke of a pen.

Trump signed an executive order in late March aimed at rolling back Obama-era rules curbing carbon emissions. Specifically, Trump’s order requires the EPA to repeal the Clean Power Plan – a hefty set of rules imposed on coal power plants.

The White House framed the executive order as a move to bolster the country’s energy independence and restore coal mining jobs. The news helped push coal mining shares higher for a hot second…

But the euphoria quickly turned into selling.

Once again, the stock market refuses to follow the media’s tidy little narratives. Coal stocks were supposed to be at the top of the heap when it came to the market’s best Trump trades.

But price action tells a different story. The VanEck Vectors Coal ETF (NYSE:KOL) has peaked not once but twice on so-called bullish news – the most recent being the Clean Power Plant repeal. In fact, the coal ETF’s most recent slide gave back as much as 15% since Trumps’ executive order went out.

Coal also topped out right after Trump’s surprise victory back in November. The day of Trump’s victory was the exact top of coal’s 2016 rally.

That’s right — coal made its big move before Trump took the White House. The big energy winner of 2016 wasn’t oil, gas, or solar. It was coal. The sooty stuff finished the year with a gain of 98%. That’s almost a clean double from one of the world’s dirtiest energy sources. And the rally started months before anyone was seriously talking about Trump winning the White House.

Once again, counterintuitive market moves stump traders who think they can trade political headlines. Investors knew Trump campaigned in favor of coal jobs and deregulation. But that didn’t change the fact that the coal rally needed a break. Anyone who bought immediately after Trump’s win is now back in the red after coal’s April swoon.

To be clear, I’m still not sure just how the coal saga is going to end. I seriously doubt Trump’s executive order will magically usher in a new golden age for dirty energy. The industry is certainly on its last legs as most of the developed world moves on to cleaner energy sources. In an age of cheap and plentiful natural gas, coal would have trouble staying in play even if we tossed every regulation out the window.

Also, it’s important to keep in mind that last year’s huge rally wasn’t normal behavior for coal. Before its 2016 run, coal endured a terrible bear market. In fact, it was one of the worst investments you could possibly make.

The industry was completely falling apart. Coal plants shuttered. And demand from China tanked. For nearly five years, coal stocks went nowhere but down. Before the 2016 rally, it was downright impossible to make money off the stuff on the long side.

If you were following along late last year, you know we took profits on our short-term coal play back in December for a 40% gain. We tried to play the March breakout to new highs, but were immediately stopped out when the market reversed. Now this false breakout is starting to look like a major top.

Coal’s time back in the spotlight could be over. KOL is once again looking weak as it sits near its 200-day moving average. A meaningful move lower from here could mark the official end of 2017’s dead cat bounce – and a new bear market for dirty energy.

Sincerely,

Greg Guenthner
for The Daily Reckoning

The Daily Reckoning