Click chart to enlargeIn a deal announced this morning, Chinese company Sinofert agreed to double what it pays to Canpotex for fertilizer. Canpotex includes POT, MOS and AGU.
All three stocks are surging in premarket. Although the long positions we choose tend to have great underlying fundamentals, this blog is dedicated to technical analysis, particularly to trend channels. To that point, POT will explode through the top of its arithmetic channel this morning. We recently wrote a post titled "adjusting offsets", which explains the difference between arithmetic and logarithmic charts. The top of POT's logarithmic (log) chart channel is now somewhere between 195 and 200 (see log chart of POT above). POT will open above 190 today, nearing the top of its log chart channel. There are very few stocks worth owning this year, so the Ag names are benefitting from scarcity value. Everyone should have some of these stocks in their portfolio, although at these levels, these positions must be hedged. As much as we'd like to sell our 25% positions in CF and CMP, this would leave us with no long positions, which we cannot have. Ideally, these stocks will pull back and give us a chance to increase our positions with less risk.
While it isn't uncommon for the market's leaders to break through the tops of their arithmetic channels and begin trading within the confines of their logarithmic channels, it is very unusual for a chart to break through the top of its log chart channel. While it does happen, it's a one-in-a-million event. Even DRYS's recent parabolic run was all contained within its log chart channel. And that led to a bubble that ended in a 60%+ decline. We only know of one chart that has broken out of its log chart channel and continues to surge higher... WLT.
It is very important to note that it's the smaller companies that have the potential for these awesome gravity-defying feats. DRYS has a market cap of $3B, and WLT has a market cap of $3.5B, compared to the market cap of POT which is greater than $50B. It is more likely that CF or AGU explodes to the upside than POT, with market caps of $8B and $12B respectively. We switched from POT to CF recently because we are not afraid of POT getting too far away from us.
It's the law of large numbers. A company with a market cap of $50B is not likely to begin a parabolic run. If it does, it's a bubble waiting to burst. If you do enter these positions here, remember to beef up your SMN position. At some point in 2008 (anybody's guess as to when), there will be a commodity correction that will destroy many portfolios. When that happens, SMN will keep you in the game.
11 comments:
Thanks Snot for your analysis. This blog is great!!
Snot, I really appreciate your blog - spotting the right stocks is the biggest part of the work. Especially, since you also look for the movement of the peer group and the right market cap of the corporation.
Instead of asking you all the time - and, of course, for my own investment purposes - I would like to screen the market, too. Maybe, I can give some valuable input here in the future and point at some interesting charts. So:
< Which broker-software are you using? I just switched my broker here in Germany and am not sure, that the new one will offer good results.
< Can you recommend a charting software? I have screened several offers, but I could not find one with a regression line and the possibility to draw channels. Sometimes, it is not even possible to draw a day-per day candle stick over a year.
< Any hint for good tools is appreciated.
Thanx in advance.
newfrankyboy
Snot,
Would you be a seller of AGU here? My basis is less than 60, and I am pretty close to pushing the sell button until it pulls back again, which it always does. Any thoughts on FCX? Still seems undervalued and copper is breaking out here.
Newfrankyboy,
We use TD Ameritrade as a broker, and they offer free charting software called Strategy Desk. For scanning stock charts, they have a separate program called Advanced Analyzer, also free to customers.
If you're looking for a paid service, we used TeleChart by Worden Brothers for many years. Their software was unparallel for its clarity. It was the most user friendly charting software we found.
Daryan,
First, congratulations for getting into AGU under 60.
We don't like giving out individual investment advice, but we can tell you what we would do.
We generally don't buy or sell entire positions. We scale into and out of them, usually around a core position. There's nothing wrong with taking some profits along the way, and re-investing later on when the greed turns back to fear. At this point, the Ag names are overextended, and we feel that we'll have a chance to buy them back at today's levels or lower within the next few months. That said, Ag has scarcity value. It's the hottest sector right now, and there's a lot of money on the sidelines waiting to get back into the market. A lot of it will likely find its way into this same handful of names, potentially pushing these stocks much higher.
Trading a part of the position in and out while maintaining a longer term core position makes the most sense. This way, if the stock continues higher, you'll be on board. If it tanks, you'll be able to buy back some of the shares cheaper, while profiting from your spiking SMN shares.
We don't follow FCX because it's not trading within a well defined trend, but it looks like there is upside on the chart.
Thanks Snot. I didn't mean to put you into a position to give advice, really just looking for your thoughts. I tend to trade around core positions, and with a 40%+ gain, and the stocks in the ag sector going parabolic today due to the rise in what China is paying for potash, it might be time to take profits. Fwiw, I am a Certified Financial Planner, I give advice all day long...and it's a precarious position to be in to say the least. As for FCX, I saw $110 as serious resistance on the chart and it busted right through there today. Stop out point would be 103ish if trading purely on the technicals. Bull flag pattern breakout from what I see.
If you give financial advice for a living, then you know first hand how thankless a job it can be! People complain when they lose 10%, but also complain when they only make 10%. You have our condolences. Nice trade on FCX today. FSLR and SPWR also bull flag breakouts yesterday.
The best part about being a planner is talking people down from the ledge (literally) over the last few months. The best advice I have ever heard and now given is that the best time to buy is when it feels the absolute worst...like a couple weeks ago. LDK is really lagging this rally for some reason...
Its funny how the solar industry is booming and Yet LDK is just hanging there (other than the 80% run up a few weeks ago :-)).
I finally cut my LDk investment in half recently and started putting it into stocks that are trending up in a large part due to the greater understanding of trends that i have gained from the Mysterious Snot. I had options in FSLR and SPWR for the last week and puts shorting citi. The citi hasnt done to well (down 16%), but they are for January so they are a long term hedge. Best of breed Steel and Solar however have increased my portfolio 25% with an investment of only 15%. Ive taken most of the profit now anyway but left some of it in SPWR just in case.
I finally cut FXP completely after its piss poor performance oon monday when china fell 5.5%. Its a sideways trading ETF from what i can see and i think puts on real vunerability like fiancials are a better bet. If they soar on unexpected results the market will go with them and so bring the longs up. On the other hand if any fall on news they are lible to drop 30%.
There's only one thing for sure in the market... when you finally decide to sell a stock that's been lagging the market, it will soar the next day:) You may not make money instantly by befriending the trend, but over the long run it will produce superior results. Like Newtown said, an object in motion is like, you know, really hard to stop. Or something like that.
Snot,
thanx for the advice on tools. TD Ameritrade does not accept customers in Germany, probably for tax reasons. I will check out the other software soon.
newfrankyboy
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