March 15th, 2013

Food Scarcity, Food Stocks and Market Correction

imageA oft-repeated refrain these days concerns the absence of significant inflation reported by the government.  However, those who frequent supermarkets complain about increases in food prices.  A recent page in the Financial Times included the following headlines; it’s enough to turn you into a survivalist, or “prepper”, begin building a bunker and store a food hoard (click on image to enlarge):

Food Prices

And what’s happening to the prices of companies in the food stuffs chain?  Not surprisingly their moving higher (being swept along with the rest of the market?).  We usually think of food stocks as safe havens to run to when the market gets shaky but, this time, there may be some strong fundamental drivers (along with major central bankers around the world flooding the market with their currencies) behind what could turn into dramatic food inflation and higher prices for the sector (click on symbols for charts; parenthesis are yield, volatility and relative strength):

Typically, these stocks have low volatility, offer dividend yields and, with reportedly a worldwide food shortage, may be perfect places to park some money as you sit out a market correction which could come during the “go away in May” seasonal market lull.

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February 15th, 2012

Don’t Let A Stock’s Price Scare You

Traders frequently harbor an aversion to high priced stocks, however, that shouldn’t necessarily be the case.  A perfect example would be a stock that I purchased for my portfolio on January 17 at 189.48.  The stock was TNH (Terra Nitrogen) and I informed members of the trade through an Instant Alert as follows:

TNH produces nitrogen fertilizer products. Although the Group doesn’t appear to be among the top tier, TNH has a 7.55% dividend yield. The stock looks like it may be on the verge of clearing out of an ascending triangle form of congestion and begin moving higher.

TNH was a stock captured in the “Stocks on the Move” Watchlist of January 6.

TNH did break out of the triangle and as of this morning is up to 236.99 for a 25.07% gain in a little over a month.

Fortunately I wasn’t scared off by the stock’s high price.  That high dividend yield is still locked in and looks even better now; the question now is whether to lock in the profit or let it ride?  What say you?

But the way, I’ve added 17 stocks to my portfolio since the beginning of February in an effort to put more risk on the table.  Members were alerted minutes after the trade for my own account is completed.  If you’re interested in seeing what I’m doing for my own account, click on the Membership tab at the top or the Subscribe button below.

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May 22nd, 2009

Is it déjà vu or something new

If you’re anything like me, then your focus is beginning to turn from “what-should-I-buy” to “what-should-I-sell”. Although it was a phenomenal run since March 9, it was just too good to last. Sure, the Index crossed its 180-day moving average (I’ve added the more conventional 200-day moving average to the chart as a gray dotted line for the traditionalists) but it never was with convection. It did so for only a day or two and volume actually declined and continues to do so.

We’re now stuck with the toughest question in stock market investing/trading – when should you sell? Accepting the proposition of a 10% market correct to around 800-810, what should we do with stocks we now own? I wish I could give you an answer but no one answer or rule of thumb covers every situation.

More importantly, the question you should ask yourself is whether there are strong, compelling reasons to not sell a stock. As a general rule, I would say that market direction and momentum rules; if the market is starting to trend down, you should sell nearly everything (especially since the Index is still below the 180-day moving average). Because you think it’s a good company, pays a good dividend, you already own it and believe it will come back or because Cramer just mentioned it on his show are not good enought reasons to continue holding a stock.

Other factors you should consider:

  • Did you buy the stock close to the March 9 bottom and now have a large profit [at least sell half]? Or did you just recently buy the stock and it now has a small loss [no loss in selling and starting again later].
  • Is the stock volatile [will drop 20%, for example, if market drops 10%] or relatively stable [perhaps weather the storm with some]?
  • Contrary to everything a regular reader of this blog believes, are you a buy-and-holder who’s owned the stock since before the crash and are hoping it will return to pre-Crash levels when the market and economy finally recover [you’re a lost soul – Sell]?
  • Do you actively monitor and manage your portfolio [conserve your capital to gain relative to the market when it’s time to jump back in]?
  • Do you have a way of knowing [like, for example, through reading this blog] when it’s time to get back in and what stocks might be the right ones to buy then?

Here’s a strategy I’ll be following myself:

  • I plan to be no more than 30-40% in stocks. If the market declines more than 10% (or, coincidentally, below the now converged 60- and 90-day moving averages), I plan moving again to nearly 100% cash.
  • Holdings will be limited to stocks related to:
    • weak dollar (forex ETFs),
    • commodities (steel, coal, ag products),
    • precious metals (gold, silver and miners),
    • higher interest rates (Treasury bond short ETFs),
    • foreign stocks (Australia, Chinese, Brazil, India, Asian)
  • As a further hedge, I have a small percentage in the S&P double short ETF, SDS.

I know this sounds extremely conservative, some might even call it pessimistic. But I’m actually quite optimistic. I, like many others, have been waiting on the sidelines and are anxious to jump in with both feet. There are reports of huge amounts in money market accounts waiting for just that opportunity. I’ve been anticipating this pullback and have written often about it as you know.

It’s not going to be much longer but the doubts, fears and anxieties will turn the next several weeks into a déjà vu kind of experience.

January 13th, 2009

Cramer and POT

One person’s rising wedge is another person’s ascending triangle (or head-and-shoulders or double top/bottom). The reason I bring this up is because so many stocks right now have or are in the process of forming these chart patterns. In my book, the mere fact that everyone is beginning to see interesting things starting to happen only raises the question of whether the congestion of prices at these levels (whether in individual stocks or in market Indexes) are reversal or continuation patterns.

Let’s start with RSG, Republic Services, a waste management firm. According to a story in the blog 24/7 Wall St., Bill Gates keeps adding to his position in this stock:

“In an SEC filing after the close today, it was disclosed that Mr. Gates spent more than $11.6 million to buy another 460,100 shares. His new indirect position via Cascade is 37,633,936. If you look through his last holdings at the end of the last quarter (9/30), this is up from his 34,873,836 shares reported [according to Google Finance, Gates’ share would be close to 20% of the total 18.19 million shares outstanding]. The transaction date was listed as January 8, 2009 at an average price of $25.39. It seems that retired billionaires must want to be garbage men. Or maybe they just want to own the garbage companies.”

And the stock’s chart?

Does the congestion of transactions here form an ascending triangle or a wedge. More importantly, does the pattern represent a continuation or a reversal pattern or is merely the beginning of a much larger pattern. [Note: the perfect channel through October until the stock broke through the lower support trendline.]

What about Cramer doing a series on charting this week (Can you believe it? Cramer lecturing on charting. Isn’t that an oxymoron?). According to the Mad Money website, “This week Cramer will highlight the market’s top five stock charts and analyze them from a technical and fundamental perspective, giving investors the chance to see what each approach has to offer and what its limitations are.” [my emphasis added] Last night he did a riff about fertilizer stocks and said that

“POT’s attractiveness can be seen in the stock’s refusal to pull back after surging 60% between Dec. 4 and Dec. 17…(But Potash wasn’t alone. The whole fertilizer sector took a big hit.)….This means that the present shareholders are committed investors, not short-term traders, and buyers are so impatient to get this stock that they’re not waiting for it to go on sale.”

Here’s my chart on POT:

But in his usual way, Cramer dissed all the chartists who love POT and said that while interestng, it wasn’t as compelling as TNH’s chart (he threw in it was also a better stock due to TNH’s higher dividend yield than the 0.5% for POT. Cramer said:

“Terra’s climbed 12% since his Nov. 3 call, and it held up best against today’s decline of all the fertilizer names. There’s also the huge dividend yield – 15% – [actually a Cramer mistake; yield according to Google Finance is 10.8%] offering investors some defense against a still volatile market. Terra has the most exposure to corn, which requires double the fertilizer that wheat does to grow, and the company’s nitrogen-based product is much cheaper to make now that natural gas, a key ingredient, is so low.”

He still falls back on fundamentals. I’m sorry, that doesn’t sound like a very deep or insightful technical analysis of TNH’s chart. Here is my take on it:

I’m sorry, Cramer has contracted a typical novice chartist’s disease, “near-term myopia”. If he had only looked at the longer-term TNH chart he would have seen a strikingly more interesting picture.

To its credit, TNH didn’t implode with the rest of the fertilizer industry; it declined around 40% while POT (and MOS) declined around 75% each. But within the context of the Goliath horizontal channel or Head-and-Shoulder top, the puny David ascending triangle looks inconsequential. Even if the stock does break out on the top side of ascending triangle it still must contend with the overhead top resistance trendline. The real money will be made when and if it breaks that line to then move into new all-time high territory.

But the point I want to stress is the similarity in the recent action of RSG, POT and TNH (plus the majority of 5000 other stocks)? Each has had the same number of down- and up-legs in their congestion patterns. Whether they look like ascending triangles, wedges or right-shoulders, they have all been impacted by the same underlying domestic and international economic and geopolitical factors. Some have managed to cross their 60-day MAs, some are bouncing off their 90-day MAs and others have yet breach those first hurdles. These factors are encapsulated and represented in the action of the S&P 500 Index:
We can over think the whole thing (as Cramer has). Sometimes there’s isn’t always a “bull market somewhere” that Cramer’s going to be able to find. Sometimes it all boils down to the same factors driving 50% of a stock’s price that moves the market. Will these factors allow the market to hold the 2003 Tech Bubble Crash bottom or not? Only time and the beginning of a swing in investor psychology to upside momentum will tell.