Are Investors Canaries in a Coal Mine?

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Yesterday's brutal correction among coal and steel stocks blindsided investors just as strong supply/demand fundamentals and strategic acquisitions of coal assets were stoking interest in these sectors.

As Fools have come to expect based on prior observations of gold and silver, corrections within long-term secular bull markets can come very suddenly and strike surprisingly deeply. Without so much as a warning shot, coal equities shot downward Wednesday by double-digit percentages. Patriot Coal (NYSE: PCX) lost 15%. Alpha Natural Resources (NYSE: ANR)? Off 17% since Tuesday's close. Even the Van Eck Market Vectors Coal ETF (NYSE: KOL) fell more than 10% on the day. The exchange-traded fund is finishing out the week down another 5% and beneath $50 per share.

Days like this highlight how crucial it is to maintain a Foolishly long-term view when investing according to guiding macroeconomic trends. Nothing changed overnight Tuesday to salve the global shortfall of coal, and no indications came to light regarding a revision of the expectations for growing demand for either coal or steel from emerging markets. Therefore, I continue to believe a long-term bull market for coal remains fully intact.

Coal companies were not yesterday's sole victims. Shares of steel producers were also hammered, even though cheaper coal would ostensibly bolster their margins. Schnitzer Steel (Nasdaq: SCHN), which uses recycled metal to produce steel, gave up 17% despite having just beat analysts' expectations with its latest quarterly results. Mechel (NYSE: MTL) mines much of its own coal for some impressive vertical integration, but slid 13% yesterday anyway. ArcelorMittal (NYSE: MT) made headlines yet again when shares ceded more than 10% on the day.

While it may be tempting to assign all sorts of significance to various aspects of yesterday's sell-off, the Foolish bottom line is that a correction in coal was due after some unbelievable gains so far this year. Industry insiders have voiced expectations for supply deficits in coal lasting through 2010. I believe coal mining shares are likely to rebound fairly swiftly, and I think the long-term outlook both for coal and vertically integrated steelmakers remains as bright as a fireworks display.

Further Foolishness:

• Massey: Better than a lump of coal
• Steel prices have risen substantially to cover costs.
• Have you checked the fundamentals for aluminum?