Click chart to enlargeCongratulations to the Snot Wheel Group on their 100th post!
Despite their recent fall, we think the fertilizer names (MOS, POT, CF, AGU) are headed lower.
The chart above is a chart of MOS, one of our top holdings until late July when the whole sector broke down. For anyone that has read Nick Darvas's "How I Made $2 Million in the Stock Market", you'll easily be able to apply his "box theory" to this chart. MOS trades in a range and then breaks out of it. Darvas used this theory on the upside, but it works both ways. Whether or not MOS has another rally or two first, we don't know. But we feel that it will break down at some point and find itself trading in the 20's. Fundamentalists will tell you that it's impossible because the p/e is low or something like that. But that's just not realistic. These same people said that at 100, and 80, and 60, and 40 and so on. Bottom line: it's a downtrending stock trading below its downtrending moving average in a sector and a market doing the very same thing. This has "danger" written all over it, and despite its technically oversold condition and presumably solid fundamentals, we'd avoid this chart like the plague.
33 comments:
If the S&P closes below 899.22 today it should make for a very interesting opening tomorrow.
Congrats on your 100th anniversary!
Hi Snot,
POT earning tomorrow. Any chance this will bounce back up?
Damn are you dumb.
Today was brutal. We didn't add any DDM or SSO yet because our last buy was around 31. We're only looking to buy below DDM 30 and sell above DDM 40. Until one of those happens, we're sitting tight with 60% cash.
If the market plunges this week, we have no reservations about going all in. Maybe even buy some OIL, GS, or GE, but the Dow would have to be around 7000 for us to do something that drastic.
Until then, we have to appreciate that the Dow put in a higher low today, so our concept of "uptrending channel" is still in play. Tomorrow's close will determine whether or not we can stick with that theory.
We suppose that "damn are you dumb" comment has something to do with saying that MOS could go lower. No offense taken. We were told the same thing when we warned that MOS could go lower from much higher levels.
No no no Snot- the "damn are you dumb" comment was directed at the anonymous poster that actually asked about POT after all your info in your post.
I should probably have made it more clear who the comment was aimed at when I left it. I just thought all your readers would be thinking the same thing I was when I actually saw someone asking if POT earnings tomorrow will help when you clearly left your opinion of the entire Ag sector!
Sold my FXP and SMN positins at the end of the day, started some DDM at 31.
FXP and SMN hae been my best friends so far :-)
Thanks for your input Snot.
I got some SSO today fill at 26.60. I will average down from if it goes lower...=:)
Don't avoid these stocks, just short them. They made me lots of money since august (Stan Weinstein rulez :D).
Congrats Snot I've been reading your stuff for a long time ...
100 posts a milestone !!!
I think we see the 7000's before it all over and maybe lower
Oh, sorry, anon, we are just so used to people that fall in love with individual stocks attacking us when we say they could go lower.
POT's earnings could help avoid instant catastrophe, or cause it. Either way, we think the sector breaks recent support at some point. If POT's report is enough to take them down a couple of points, they'll break support and momentum will take them down the rest of the way. Of course we're hoping this doesn't happen because we'd like to see the market remain within its uptrending channel. If we lose commodities (again), the whole market will break down and retest 7800 as a minimum.
hk22, you're timing is a lot better than ours...nice trading! Do you have a blog or can you post your trades here after you execute them? We sold FXP at 120.5 today, which seemed good considering we bought it in the 80's, but we didn't expect to be able to get 130 today. At 130, FXP's risk outweighs its reward. You could make 40 points holding it long at 130, but it could also go to 80 real quick... too risky for us.
26.60 on SSO, that must feel good... just got a DonHarrold update saying to buy DDM and QLD, so at least we're not alone in this!
Hey Hal, thanks for checking in every so often. Hope your trading is going well, if that's possible in this market. Dow 7,000 sounds good to us. We were thinking we'd get closer to the moving average before taking the next plunge, but days like today make us think otherwise. The uptrending channel is still in play, but if we close down a few hundred tomorrow, it will be off the table. Then it's a matter of taking out the lows or not. If we take them out, 7,099 is the next stop... that's a 50% drop for the Dow!
PUT Option on SSO at $22 trade over 3000 contracts. I think the market could go lower from here. Any input here...
Thanks Snot,
Actually I sold most STO+FXP yesterday to take some profit and added DDM at the end of the day.
Today In the morning I Sold all the DDM shares that I bought the day before, the US market looked like it was going to follow European and Asian markets, It didn't look like we were going to have any V's today.. At the same time I added more FXP+SMN at the begining of the day to offset whatever I lost on DDM. I was going to put limit sell orders (125 for FXP and 89 for SMN) on both but luckily I didn't.
So, as of right now I only own DDM with 28% of my funds.
Hi Snot, do the indexes look like the bullish triangles? Thanks!
pretty scary stuff....
http://market-ticker.denninger.net/authors/2-Karl-Denninger/P1.html
Snot,
As much I appreciate your site and your insights into the market, we have to face the reality that the US is going the same way as Japan did in the 90's. To say the least, 8,000 on the Dow will be celebrated a few years from now. All this averaging down of the indexes will just leave you in a big hole unless you hedge really well. I think most people should stay away from the markets from now and focus on cash preservation. The carnage is far from over. And if the US was to become bankrupt as the previous post suggests, we will have to create a new word for the destruction. Good luck to everyone.
Rik
Rik,
It's clear that fear started returning to the market today.
We're in the same spot we were in 6 months ago with our portfolio, despite a massive selloff in the market, so we do hedge and trade around a core position pretty effectively. You're right, though, that a 2,000 or 3,000 point drop in one session as the article suggests would be fatal.
There's no trading around something like that. The best you can do then is to have the stomach to put the rest in afterwards, not knowing if the next day will improve your situation or bankrupt you. But these are very extreme times and very extreme situations.
As crazy as it sounds, if the market drops 2,000 or 3,000 points in a session, we wouldn't mind going along for the ride with a portion of our portfolio because once you've traded something like that, nothing is ever scary again.
We often don't buy when the market is down 700 because we want it to be down another 1500 the next day. So we, like many others, have become immune to 10% days in the market. This attitude itself could cause the plunge you're fearing now. A lot of people fear it, and many are predicting it. That's why we're 60% in cash.
If the Dow does reach 5,000, we think the average person will have much bigger problems stemming from the effect that will have on the economy than the effect it will have on their portfolio. In other words, their 401k's will be the least of their problems. Retirement will not be an option in a world of widespread unemployment, scarcity of food and other goods, looting, massive waves of crime, riots, etc.
What you're talking about is extreme. The article was extreme. The author lost us when he said that many of the dotcoms were more ethical and legitimate than the current financial companies. This is totally false, and he knows it. Many of those companies were not even real, and they were run by the same thieves that run publicly traded companies today. The article is written to invoke emotion. Don't let it sway you too much. There may well be capitulation, which we need, but let's not get carried away with the collapse of America scenario.
We did agree with the author, though, that some people and companies should go bankrupt. They will after this all blows over. The government is not trying to bail everyone out, they're just trying to limit the number of people and companies who fail, and give them a chance to restructure their spending habits for the best chance of survival. This lifeline will allow those on the borderline to survive, while the others collapse slower over the next few years instead of all at once.
Snot,
How about a new survey on when DOW will bottom?
Thanks,
Tons
Snot,
If I'm not reading you wrong, you don't seem to believe this slump will last long due to global effort and the resourcefulness of American people. If you look at the Japanese market, 20 years later, it hasn't recover from the housing/financial meltdown of late 80s. Banks is amazingly vital to the rest of the economy. Now with the new 700B bailout and global effort to curb the meltdown, what's your take now on the time frame of recovery in market and real estate? Thanx!
You know its actually funny when you think about it. Everyone thinks their bubble is special and unlike all other bubbles ever their special one is immune from collapse. Americas bubble is different because its the greatest and richest nation on earth. Chinas bubble is different because its the biggest population in the world and transitioning to a consumerist society in a super quick process. Japans bubble was special because electronics were going to change the world. The internet was going to change the world so its bubble was different. Dutch tulips, Columbus and the new world, you name it, it was never different and it never will be. What goes up must come down.
Everyone is still stuck in this mindset that this bubble is different. Sure, we talk about dow 5000 but if anyone really believed it you would be 100% short, not averaging down on losing long positions. Really folks, what is there that would indicate that we are about to turn around and prove the bubble to be different after all? Its not going to happen. The govt still hasnt admitted that there is a recession coming and we talk about it as if it is something that can be avoided despite the only alternative being the impossible situation of a permanent boom!
Long term decline is a normal process after a bubble bursts and given that the american wealth bubble was the greatest in history i see little reason to think that the subsequent collapse woudl be anything other than the greatest in history. The only question left is what to short.. ??
"The only question left is what to short.. ??"
If you can find something to short and hope the government doesn't decide to ban shorting. Thats the problem you have Uncle Sam not only buying into the markets hes setting the rules too ...
I think I just sit on 90% and wait get back in. NO short NO long for now...
No one ever made any money cowering on the sidelines in the fetal position.
Sold all my DDM shares that I bought yesterday for 31/share for a 4% profit.
As of right now I'm 100% in cash.
Just bought back the FXP we sold yesterday, paid 130... ouch! Just can't go without insurance right now, this isn't looking good. On a one minute chart, we need to break the moving average, and we can't seem to do it. On a very short term basis (two days), we're in a downtrend. If we close below 10-16's low of 8200 today, the "uptrending channel" bet is off. We'd only add more FXP if the Dow breaks 7882. Of course by then it'll be 150 or more. The weakness in this market is just incredible. Hope everyone is hedged or has a lot of cash.
Thanks for the reality check, Sniper. You're absolutely correct with regards to the U.S. market being able to crash. We think the U.S. economy will be a lot more resilient than any others, but the stock market is a different story. Nothing on Wall Street suprises us. Dow 3,000 wouldn't suprise us, but if that happened, we'd expect to see Dow 6,000 the very next day. Despite all this talk about Americans going broke, there is still a lot of money on the sidelines. You can't blame people for being 90% in cash, or for staying out of this market. The conditions are in place for a crash, but those that predict crashes have predicted 11 of the last 2 of them, as they say.
Anon, it's not that we believe that the downturn won't have lasting effects. It's just that we believe that Americans, mostly because of their freedoms, will be more resilient than others.
When we get tired of the recession, we'll get a burst of new energy and start working ridiculously hard again. It's all just part of the cycle. What we need, though, is an administration that is far more aware of our nation's finances than the previous one.
"what is there that would indicate that we are about to turn around and prove the bubble to be different after all?"
A new and bigger bubble! The Final Bubble. 5 trillion dollars added to the national debt, in a last ditch attempt to stave off a depression, and actually causes a depression! But befor eit does, it could create one more really really big bubble.
Wild swings,
Can't never predict these ones.
Im glad I'm all out tho.
Anon, a bigger bubble is a very scary concept. People are quick to forget times like this, so a bigger bubble could theoretically happen.
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