Tuesday, March 27, 2012

Look Out Below! Patriot Coal (PCX) & VirnetX Holding (VHC) in Technical Trouble

There are really only two schools of thought in the world of stock-picking.... trade them based on what they should be doing, and trade them based on what they are doing. The former feels right, but it's the latter that tends to put the most money in your pocket. Enter VirnetX Holding Corporation (AMEX:VHC) and Patriot Coal Corporation (NYSE:PCX), stage right. Regardless of whatever pro/con arguments are being made for either, both PCX and VHC have dropped key technical hints that say the trading masses have their pitchforks and torches in hand.

Not that Patriot Coal Corporation was on the mend just yet, but after finding a floor at $6.86 last week for the third time since October, it was at least beginning to look like the bleeding stopped. Wrong. PCX has fallen 8.0% today, reaching $6.34 in the process and opening up a whole new door of bearish territory that up until now had been closed. And, given the way the 50-day and 100-day moving averages have been pressing down the whole time, it's not like there's a lot of hope for a quick fix now.

At the heart of the problem for PCX is falling coal prices. Coal prices have been sliding since early 2011, but the tumble started to reach 'in earnest' levels in January. Although coal's tumble may finally be coming to an end - thermal coal has been hovering $60-short ton since late January, and coking coal is getting in a groove around $200/tonne - it's down again today. Investors seem to be uninterested in waiting it out any longer with Patriot Coal Corporation simply because there's no end in sight for the slacking demand.

As for VirnetX Holding Corporation, a couple of months ago it looked like this pseudo-technology stock was ready to make a bullish run. We had just s! een VHC win a hard fought battle to get back above all of its key moving averages as well as a key resistance line. And, traders were getting excited about owning it again; the company had just been awarded a favorable ruling in a patent infringement case that stood to start generating some solid recurring revenue. Since then though, a reopening of the USPTO patent case has exposed this company's vulnerability in the mobile patent game.

To put it in technical trading terms, VHC has fallen back under all of its key moving averages, and back under that key ceiling at $24.09.... and it's still moving lower. We're also close to seeing a so-called 'death cross' of the 50-day moving average line (purple) under the 200-day moving average line (green), which would suggest the momentum for VirnetX Holding is bearish is multiple timeframes - the last thing any owner wants to see.