The energy patch has been hit far and wide in recent weeks, but coal stocks were starting to get blacklisted long before the latest energy swoon. While the long-term prospects for coal stocks are hazy at best, Profit Scanner powered by Recognia indicated that there’s a potential short-term opportunity to profit from a quick recovery  in a big Chinese coal name: SinoCoking Coal and Coke Chem Ind, Inc. (NASDAQ:SCOK).

Again, you’ll be hard-pressed to find anyone who’s a perma-bull on coal for the longer term – including us, especially with the bankruptcy risks – but nimble traders can take advantage of short-term surges in particular coal names like SCOK.

At the Nov. 12 close, Profit Scanner identified two intermediate-term bullish patterns on SCOK’s chart, a Bottom Triangle and a bullish Continuation Diamond. Both patterns have upside targets of $5.30 to $5.80 for SCOK shares but in slightly different timeframes.

The Bottom Triangle is expected to play out in about 20 trading days, or by approximately Dec. 15. A Bottom Triangle tells traders that a stock’s price appears to have reached a bottom and it’s showing signs of reversal after breaking upward after a period of uncertainty or consolidation.  Volume decreases as the price swings back and forth between a narrow range, which reflects uncertainty in the direction of the market. Then, long before the triangle reaches its apex, the stock’s price breaks above the upper trendline with a noticeable increase in volume. This confirms this bullish pattern as a reversal of the prior downtrend.

The bullish Continuation Diamond is expected to resolve in about 30 trading days, or by approximately Dec. 29. A bullish Continuation Diamond tells traders that a stock’s price has broken upward out of a consolidation period and suggests a continuation of the prior uptrend. The pattern begins during a downtrend as prices create higher highs and lower lows in a broadening pattern. Then the trading range narrows gradually after the highs are in and the lows start trending upward. When the price breaks upward out of the Continuation Diamond’s boundary lines, it marks the continuation of the prior uptrend. 

Both patterns emerged on strong volume of about 1.1 million shares traded, though the average daily volume for SCOK is about 2.7 million.

Support for SCOK doesn’t exist until the $1.19 level, and resistance resides at $3.35, so traders may wish to wait for SCOK to close above this level before initiating positions. However, in September, SCOK edged above the $9 range, so if the stock tries to make a run back up to those levels, the high side of the patterns’ targets will be achieved easily.

A stop loss makes good sense here, too. Profit Scanner offers traders several stop loss choices based on your risk tolerance. It puts a tight stop at $2.31, a medium stop at $1.48, and a loose stop at $0.65.  But, as noted, energy is generally in a slump with coal stocks taking an even bigger brunt due to environmental concerns, so traders should be very quick about taking profits in SCOK if they emerge.

Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.