Clean coal stock Peabody Energy Corp (NYSE:BTU) is trading at $28.34, down 13.8% this month already and 45% off its March 19, eight-year high of $41.14. The energy crisis brought on by high oil prices and the U.S.-Iran conflict have not been kind to stocks like Peabody. The upside for contrarians is that his drawdown has BTU testing a historically bullish trendline.
Per Schaeffer's Senior Quantitative Analyst Rocky White, the stock is now within 0.75 of its 200-day moving average's 20-day average true range (ATR), after remaining above it 80% of the time in the last two weeks and in 80% of the last 42 trading sessions. This signal has occurred seven other times over the past 10 years, after which the security was higher one month later 86% of the time, with an average 9.6% return over that timeframe. From its current perch, this lift would put the shares back above $30.
Keep an eye on BTU's 14-Day Relative Strength Index (RSI) as well, which is near "oversold" territory at 35. Previous forays this low often preceded rallies on the charts.
A short squeeze is also in play. While short interest tapered off in the most recent reporting period, a healthy 11.8% of the stock's total available float is still sold short. At BTU's average pace of trading, it would take shorts four days to buy back their bearish bets.
