Click chart to enlargeWe could use the chart of any uptrending stock for this post, but we've chosen the chart of Mosaic (MOS) to demonstrate the importance of your buy timing. To make this point, let's assume that MOS reaches the bottom of its channel (111) tomorrow.
Now, if one were to have bought MOS above the top of its channel in January, they would have paid about $110. After 3.5 months, they would be breaking even, after a very stressful ride.
Instead, had they waited 5 days and bought below the bottom of the channel instead, at $72, they would have made 100% in just 3 months, with nearly no stress.
So there you have it. Buying at the bottom of the channel vs. buying at the top... a 100% difference.
We're betting that all of these fertilizer stocks make new highs later this year, and are using this most recent selloff as an opportunity to scale back into them. After all, considering their stellar charts, their p/e's are not at all outrageous. We will turn our SMN profits into additional shares of one of the fertilizer names when and if they capitulate. We're hoping we get this capitulation tomorrow afternoon (or in the days ahead), after Bernanke reports that we've seen the last of the rate cuts for the forseeable future.
We are not concerned that the Ag names are correcting in the abscence of a broad market selloff. They simply overdid it on the upside, and will now overdo it on the downside. It's just the nature of the investors/traders playing these names.
9 comments:
I am waiting to buy POT. Do you think $165 is a good entry? What is the price on your lower trend line? You do not worry the AG sector may be shorted to hell like Solar?
Bottom of channel for POT = $162.
It has broken through the bottom of the channel and hit the 100dma twice this year. The 100dma is now at $153.
As far as the Ag sector being shorted like solar...
It is more volatile than ever, but it is not solar. The big difference is p/e. Solar stocks were trading at triple digit p/e's. The Ag stocks are trading at p/e's in the teens. Ok, MOS is 30, but that's the exception to the rule. CF's p/e is 11.
TOTALLY different than solar.
Hey Snot,
You're probably going to get your wish with the Ag stocks hitting the bottom of their channels. Do you think steel is going to rollover as badly? Are you concerned about MTL losing 8% today against the rest of the steels only losing 4%?
MTL looks like it could still drop to 133 and stay within it's channel...but still- it acted like worst of breed today.
Thanks,
Craig
We've got MTL's bottom of channel at 124. It's just below the center now. We wouldn't worry about one day weakness. From the beginning of April, MTL rose 38%.
Compare that to 24% for X, 11% for ZEUS, 25% for AKS, and 25% for SID.
It's no wonder that MTL is correcting harder than the others (or maybe just before the others).
The percentage of that rise alone should make you have confidence that MTL is a stock you want to own. Until the entire sector shows signs of a complete breakdown, this weakness in MTL is a buying opportunity as far as we're concerned.
Hey Snot,
Thanks for your article. I bought MOS previously at 137 and sold it of selling pressure taking a big loss at 117. As you mentioned, if MOS reaches the bottom of the channel at around 111, do you think it is a good point to reenter at that level?
As far as the PE of MOS, you mentioned it is around 30. But the yahoo page says that MOS has a forward PE of only 11. Can you clarify?
thanks,
TZ
Snot,
could you please be so kind to post your magic charts of MOS, POT and MTL. I'd like to see your chart channels.
I still haven't figured out a good software program (but I will!). Probably,the other readers here, would like to see the charts, too.
Thanx, newfrankyboy
Hi Snot,
Thank you for your reply on my question about MTL. When I looked at your posted chart here dated 4/14, 124 was obviously the bottom of it's channel (and it's 50dma). I thought since it had set a higher high since that date (and now a new higher 50dma) that the channel's bottom had moved up a bit...
I can see that I have to develop a stronger tolerance for pullbacks than I'm currently used to. I just want my stocks to do nothing but go up!! LOL
Newfrankyboy- if you're looking for a good software program TC2000 is arguably the best out there. And if I'm not mistaken, Snot's charts are from TD Ameritrade's Strategy Desk which is free for clients.
OT: Have you noticed CBI this morning?
GLTA while we wait on Uncle Ben, Craig
TZ,
We neither buy nor sell all at one level. We buy and sell in layers. We'll definitely be adding another layer at the bottom of the channel (if we get there).
We'll still have dry powder in case it goes even lower. If it were to fall as far as it did for its past two corrections of approx 36 and 26%, it would reach 91 to 106.
As for it's p/e, you're right that its forward p/e is a lot lower than the 30 shown on Yahoo Finance. It shows its fiscal year as ending on May 08, whereas the others end in Dec 08. This explains the discrepency, and brings MOS in line with the valuations of the others. All of them are below the historical S&P average of approx 15. Pretty amazing when you consider how popular these stocks are. You would think that after the run they've had, they'd have outrageous p/e's.
Snot,
what is your thought on the action for MOS and AGs in general today? Seems like the sold off prior to the fed cut and then rallied a bit into the finish. Do you think they will continue to correct further? Wondering if I should start layering in now or not.
Thanks!!
- stoptazzer
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