Click chart to enlargeHere is the chart showing MOS down 23 points to $44.43. The incredible thing about fundamental analysis is that if you listen to their reasoning, fundamentalists always sound incredibly informed and dangerously smart. They could sell you the Brooklyn Bridge. What doesn't add up is that these same people were pounding the table on MOS's great valuation when it dropped from $162 to $120 in June and July. Then they came out of the woodwork again to sing its praises when it dropped from $120 to $90 in August. They reminded us once again of its incredibly great value when it dropped from $90 to $72 in September. And now, of course, at $44, they simply cannot get over what a value it is!
All along, they've maintained that MOS is a terrific company with compelling numbers... yada yada yada. Meanwhile, all along we've sounded like idiots, saying something as simple as "it broke the trendline and moving average and it's going to $0... GET OUT."
Are we still idiots? Will we still be idiots at $30? $20? $10? Do we ever lose our "idiot" status in the eyes of the fundamentalists because all we do is focus on the charts?
Let's categorize this phenomenon as one of the many unsolved mysteries of the stock market.
In more important news, we've been accumulating DDM in anticipation of the House vote. Like Art Cashin (gotta love that guy), we believe the resulting rally will be feeble, but tradable nonetheless. The strength of the rally, if there is one, depends primarily on where the Dow is trading ahead of the vote. If it is down substaintially before the vote, we could gain 500 points from the bottom. If it is up 300 tomorrow ahead of the vote, expect the vote to be a nonevent. If the vote is "nay", we'll lose 800 points in no time, regardless of which level we start from. We are content holding the shares longer term if need be, as the Dow is near the bottom of its channel (far from its moving average) and deserving of a bounce. We are 30% invested in DDM and are 70% in cash. Our next move is not up to us, it's up to the market. If we get the rally, we're out. If the market drops, we have no reservations about averaging down into an index, bull market or bear.
18 comments:
Hi Snot,
Given the market momentum for AG and other basic material sectors is gone, you cannot short these positions, why not buy SMN? Do you think it might be too late to get into it now?
Thanks,
Edward
Yes. SMN is a great idea, but at this point, you should wait for a bounce.
Thanks...
I am looking at the very short term 6 weeks Dow chart, it looks like we cannot expect a quick bounce until it hit around 10400. If it is correct, we can have another 150 points to go south. What do you think?
Edward
Snot, what do you think the odds are of the House passing this "rescue" bill?
Ed
Ed, you can't count on predicting the Dow. Best you can do is set yourself up to win either way. Buy some DDM now, and buy the rest if it drops hard. That's what we've done. If it goes up, we make money. If it goes down, we'll add at or below the bottom of the channel. We also see 10400 as being the bottom of the channel (see our chart posted on this blog on Sept 23). But we aren't waiting for it to get there.
It would come as no suprise whatsoever if the Dow went to 9600 before bouncing. All we do know is that far more predictably than any individual stock, the Dow is likely to revert to its moving average at some point. Right now, it is so oversold that a meaningful rally is due. Not a new bull market, but a meaningful rally nonetheless, like the one we had from March to May.
Our guess is that the odds are better than 85% that it will pass.
They are being heavily persuaded by some extremely powerful and influencial people, and what Paulson wants, Paulson gets. At the end of the day, they are all his puppets. The bill will pass, or there will be absolute carnage on Wall Street.
Snot,
short question about MOS: The selloff today is huge. We are currently trading well below the 100 and 200 day moving averages. We formed a gap down.
How high is the chance for a short term snap back - at least to fill the gap?
Still appreciate your blog.
newfrankyboy
The odds favor a bounce, but it's an extremely dangerous game. The bounce may be small and if you're not out in time, the momentum could easily take it lower. Your efforts are better spent elsewhere. MOS is not the stock it used to be. The hedge funds have left it to rot.
Hi Snot,
What is your input on POT? Broke down big today. Thanks
Snot,
Thanks again for your suggestion. Bought some DDM at 50.3, let see what's the bailout plan will direct the market tomorrow. For now, just stay tune to Palin's debate tonight. :)
Edward
POT, same as MOS. Think of the next stop as 14 cents, that way you won't be disappointed when it hits $18. It will take many months (maybe even a year) to reach the teens, but that's we're these stocks are headed. They may even bounce strongly a few times on the way down. But make no mistake, the party ended in July and it is not returning.
Nice purchase, Ed. 50.3 is better than we did. Hopefully you only own about 1/3rd of your desired DDM position at this time. We're looking to add again at Dow 10,000 if the bill gets rejected, and then we'll look to keep adding in the 9,000's if it comes to that. It's very unlikely that we get much lower than 9800 without a major bounce.
No doubt mos is in a downtrend according to the chart, but I don't agree MOS is only worth .14 per share given their latest earnings per share was almost $3.
Granted, your point about the number of shares outstanding is a good one, however, let's not get carried away. MOS may well trade down to the single digits but at some point, the trend will reverse when conditions are right and perhaps some company will buy them out, so these stocks will not go to $0.
Snot could be right about the AG sector. If you looked at the telecom sector when it was booming back in 2000, the same trend pattern applied. ADCT was once trading in the mid 40s, today it's under 10. The current price is a result of a reversed split 7 to 1 a few years back. Basically, it's a penny stock if taken out the reversed split.
Edward
Hey Snot,
which websites do you use for your general market updates/news?
We don't use websites, we just watch CNBC. How much more news/updates do you need? All news is old anyway, as far as the market is concerned.
Hi Snot,
Question regarding DDM.
How would you have traded DDM during June 18 to July 02. I Understand that you buy with 30% of your funds first and add up if it goes down the next or third day. But what you would have done in this case..Do you accept the loss and sell or keep buying.
another question regarding StatoilHydro (STO). Do you think is heading to "0"?
hk22, you're missing one piece of info which is where DDM (or any chart for that matter) is in its channel. We only start buying near the bottom of the channel, and add as it goes lower. On June 18, the Dow (and DDM) were above the centers of their channels.
They only became attractive near the bottom of the channel at the end of June and early July. To see the channel we're referring to, scroll down on our home page to a post we wrote on Sept 23.
The Dow (and DDM) are currently near the bottoms of their channels and thus have piqued our interest. We're not saying they won't go lower. We just put the odds in our favor on each trade so we win more often than we lose.
As for STO, ouch! That's a painful chart. It never was surrounded by the kind of hype that the ferts were, though. It's a lower volume stock that is out of the limelight, so it may not reach $0 as quickly as the real high flyers. It will find a price at which it will go sideways for a long time. For all intents and purposes, though, consider it as a stock going to $0. This is the safest mentality to have with any Stage 4 (downtrending) stock.
Wait until the entire market stabilizes before touching any chart that looks like that (other than the indexes themselves, which never go to 0.)
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