Click chart to enlargeThe above chart of Mosaic shows why you should sell a stock when it breaks its trendline and moving average. Late July was the time to bail on the fertilizer stocks. We haven't looked back since. We said that these stocks, despite their incredible strength in 2007 and early 2008, were headed to $0. We still stand by that, with the caveat that all companies have some intrinsic value, which prevents them from actually reaching $0. The problem with the stock market today is that they create such an absurd number of outstanding shares, that a single share of stock is only worth about 14 cents (intrinsic value of the company divided by the number of outstanding shares). This is why when stocks break down from lofty levels, you MUST sell, and never look back. Our best guess is that MOS, MON, CF, POT and AGU will spend the next three years slowly trickling down to single digits, and then spend the next 5 years struggling to stay above $5 a share. Congratulations to any of you that loaded up on SMN when the ferts broke down. SMN has been a stellar performer of late.
In other news, the Dow is once again in no man's land. It is near the center of its downtrending channel, making it nearly impossible to guess at its next move. We continue to remain focused on buying DDM or DXD when the Dow makes a major (800+ point) move.
Although the Dow has recently been very volatile, it hasn't gone anywhere in 2 weeks.
2 comments:
When did you get out of your DDM?
Lay the chart of MOS and other fertilizers on top of DIG for the last six months and you have almost a mirror image. Fertilizer has been trading like a commodity in lock step with oil. When oil finds a bottom, fertilizer will be at a bottom. Many experts say the bottom on oil is somewhere between $80 and its current price of $100, depending on how much more demand destruction results from the recession around the world.
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