Giant and growing emerging markets of China and India use it to generate more than 70% of their electricity

After playing possum for three months, coal stocks are ready to shoot higher again...

While most folks love to hate coal, the U.S. is addicted to the stuff. We use it to generate around 45% of our electricity. The giant and growing emerging markets of China and India ("Chindia") use it to generate more than 70% of their electricity. And as this chart and this chart show, their increased coal consumption is one of the most relentless uptrends in the world.

Chindia's consumption boom helped coal stocks enjoy a big uptrend from early 2009 to late 2010. But like many commodity sectors, this uptrend slowed down a few months ago. It looked as if the run could be over. But as you can see from the chart of the Dow Jones Coal Index below, this sector is breaking out to new highs...

At Stansberry & Associates, we've tested all kinds of trading strategies with coal stocks. And we've found that basic trend-following systems work best. That's because "the coals" tend to boom and bust like crazy... usually according to swings in global economic growth.

For a picture of this boom and bust nature, let's have a longer-term look at the Dow Jones Coal Index. As you can see, the index busted in late 2006. It then boomed in late 2007 and early 2008. It busted again in late 2008... then boomed, then busted, then boomed again.

There's no need to get fancy with a "boom and bust" asset like this. All you need to do is jump onto it when a price breakout like this occurs... then set a trailing stop to protect yourself from a loss of capital.

The easiest way to take a position in "the coals" is through KOL, a liquid ETF that gives you a "one-click" way to own a diversified basket of coal stocks. If this latest breakout is the start of another coal boom, you could make 50%-100% a year.

On the other side, if coal stocks drop back down more than 5% from here, it likely means they're not ready to take off yet. But keep an eye on the sector. With such a solid fundamental story behind it, it's one of our favorite "boom and bust" trades right now.