Click chart to enlargeMosaic has already corrected to the center of its channel. If MON pushes Ag lower tomorrow, there could be a chance to buy near the quarter mark or lower. Because the lines of the channel move higher every day, buying at the quarter mark and waiting a month puts you in at a price equal to the bottom of the channel. We generally don't like holding through the consolidative phase of the cycle, but if the price is attractive, we buy a partial position early on. The earliest purchase is often the cheapest one. Buying Ag here should not be done without also holding some insurance (SMN), in the event that this iteration of the cycle is its last.
It's unlikely that this is the last iteration of the bullish cycle because the latest highs easily took out previous highs, suggesting a continuation of enormous upward momentum. It's only when a chart barely posts new highs (or fails to alltogether), that the following retest of the bottom of the channel (support) is likely to fail.
13 comments:
It was said on CNBC that the Ag stocks were trading at outrageous valuations. A comment was made that Mosaic's p/e is higher than that of Google's.
On the surface, it appears that way. Google's p/e is 27, whereas Mosaic's is 36. However, when you do the same calculation using NEXT year's earnings, Google's p/e becomes 22 compared to Mosaic's 11.
What should have been reported on CNBC is that Mosaic's forward p/e is half that of Google's.
But who are we to complain that CNBC is helping us attain a better purchase price for shares of Mosaic?
Bought some POT, MOS and CF today. AGU still feels too high. MOS has fallen harder than the others in the past few days, so it isn't getting hit as hard today. The shares we're buying now are most likely going to be sold sometime in the Fall, so a slow accumulation is the way we're approaching it, hedging of course with a small amount of SMN. We're now 17% invested without counting SID and MTL. We'll sell SID and MTL to make room for more Ag shares if they correct enough to tempt us to go "all in" to the Ag space. We're hoping the Fed raises by 1/4pt today just because it will send the market into a tailspin, forcing another string of foreclosures. This would hurt us on the mortgage end, but help us get back into the Ag names as cheaply as possible. The hope is that the Fed hikes, realizes the destruction it had on the market indexes, and stops hiking until 2009. One can dream.
Snot, this article thinks ag's run is over. Any comments?
Link
The article has charts, but they aren't as good as yours. The volume shown on MOO is interesting, but otherwise, I don't see the point. Also, one of his possible replacements for ag is financials. Here are the key thoughts:
Agricultural stocks are one that has begun to struggle a little. Even an increase in the share price target of Potash (POT) hasn’t stopped it from getting hit today. It’s the same across the board with CF Industries (CF), Monsanto (MON) and Agrium (AGU) all giving back a few points. That in of itself isn’t a big deal, especially with high beta stocks, but something else is developing that raises yellow flags.
The agriculture ideas are failing at key resistance points on individual charts and the agribusiness ETF (MOO) is spinning its wheels and pulling back from a double top. The fundamentals on this group remain great but, from an investing point of view, maybe it’s become one of those trades that everyone knows, which makes it a lot less attractive than when everyone though “moo” was only the sound cows make.
I’ve felt for a few weeks now that smart money has been searching high and low for another sector or niche(s) to get in, something off the beaten path. Let’s face it: At this point, even with their great fundamentals story and potential the agriculture stocks are no longer the road less traveled.
They know that ag will correct and then move up again. They use articles like that to flush out weak hands and buy at the bottom.
The article is all fluff. The only truth in it is that Ag is no longer the path less traveled. At some point, its popularity will be its downfall. But not until the p/e's get too high. These stocks 2009 p/e's are in the teens, so no need to worry about the run being over yet. If you want to worry about Ag, worry that the herd can lose their cool and make it plunge for a day or two. But it would just be another buying opportunity.
Why are we so sure of this? It's because the last time Ag rallied, it made substantially higher highs. It isn't until a rally fails to bring them to new highs that they could be putting in a top.
As for the Ag correction, it may look scary to those who bought at the very top. But for those that are reading the charts, it was predictable, necessary and healthy.
Stocks correct after huge gains... no need to write an article about it. It's not a new phenomenon.
As for MOO, it's doing exactly what it should be doing. No weakness there.
Talking about new highs: As far as I see, MTL bareley made a new high. That speaks for the fact that the run is over. Then it fell back to the bottom of the channel - so it looks like the upward trend is still ok. Any opinions?
Thanks for your thoughts everyone. My sentiments exactly. I'm almost 100% in cash right now with a little DBC. I'm waiting to buy MOO to hold long and will day trade MOS, POT, etc. BTW, SLX is a steel ETF for those who are interested in the sector rather than a specific equity.
Here is an interesting article from a couple of years ago were a guy was saying jump into commodities and that the run would last for years to come.
Link
From some more recent articles in May and June, it sounds like he hasn't changed his mind.
A corny article on ag potential in the market. :)
Link
JSW
Hey Snot, I would be interested to here everyones guess on where the bottom of the market will be. It looks like we are really just about back to the lows we had in January and March. I am wondering whether others are thinking of starting to buy something like SSO now. The dow is reading as very oversold...... Are we definitely headed for 10,000 ? I really think that might be the case, but I thought that last time and we never made it.
Thanks for the interesting articles. Will read them tonight. Interesting you're eyeing SSO, squarpeg, we're eyeing DDM. No doubt the Dow is oversold short term (well below the moving averages), but will there be a capitulation day? The next stop "should" be in the 11330 - 11360 area, which marks a full 20% correction. Problem is, it's a falling knife right now and it's anyone's guess what it will take to stop LEH from going under and taking the Dow down 1,000 points with it. Of course, you can buy the DOW (DIA or DDM) and hold them forever, so it's a good long term investment regardless of what the Dow does over the next few months. That part of the trade does make it tempting. We're taking the stance that IF there is a huge capitulative, dramatic bottom, we'll buy DDM at that time. Until then, we're just going to let it fall. It will be interesting (and very telling) to see if it closes below January's lows today. If it rebounds strongly this afternoon, a short term bottom is likely in place.
In one of your columns you suggested buying DDM if the DOW dropped to 11,800 and DDM was $66. It is low $63s now. I also am eying DDM rather than QLD or SSO because DDM is not as volatile, in part because it is partially made up of big energy like XOM. If higher oil hurts the market, DDM may not get hurt as bad. So I'm watching the DOW and DDM but haven't pulled the trigger yet.
If you're buying DDM on a day that the Dow is down 600, then you should make money off of it in a matter of days. But if you're buying it at any random point in its slow descent, then you have to think of it as a long term hold. If you make money right away, great. But you shouldn't enter the trade with that mindset. When we said DDM at 66 was a buy, that was paired with OIL simultaneously spiking to the top of its channel. The hope was that when OIL hit the top, it would fall and the Dow (and DDM) would put in a bottom. Instead, the Dow is falling and OIL isn't spiking. It's actually pretty scary because the chart of OIL is ready to break out to the upside! It keeps hitting the $83 mark and falling. If it breaks resistance at 83, it could easily get to 87/88 in a matter of a day or two. That could trigger a capitulative selloff in the Dow. DDM is tempting here, and we may even buy a very small position, but what we want is to see a dramatic bottom, preferably simultaneous with at least a short term top in OIL.
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