Get Ready to Hop On the Fertilizer Train

Mosaic $MOS kicks off this round of earnings reports in the agricultural sector today after the bell.  It’s always interesting when we find a confluence of technicals and fundamentals, isn’t that they way it’s supposed to work.  Mosaic is running up into some major resistance.  We have filled the gap from the dump of September 08′ but haven’t been able to pus above the low of that candle as of yet.  If $MOS can break through 63 on strong volume it will most likely set off a run in the agricultural sector.  I would not be afraid to buy a nice gap up tomorrow morning as an entry to a position trade using last Wednesday’s low as a stop.

The agricultural space was overwhelmed by hedge funds in 07′ who all wanted a piece of the momentum being built through increasing Chinese demand.  Remember that food scare when CNBC was reporting from Costco about how there were rice shortages on a daily basis.  It was an obvious bubble that was bound to pop, but the underlying long term fundamentals of food scarcity are positive for the agricultural sector.  But like all momentum stocks chased by too many hedge funds, there was a complete dump in 08′, positions were liquidated as it’s hard to explain to your general partners why you were holding stock in a company that sells shit while the world is falling apart.  To be sure, China did manage to get a monster price cut on their fertilizer, but many of these stocks where slammed by 80%.

Let’s take a quick look at a few other agriculture names, if $MOS starts to run there will be plenty of pinball action in this industry.

$CF is pushing up against a large level of resistance going back to October, but we are above the crucial level of the May highs at 85.  The 200 day moving average is providing some nice support and if it can push above that 95 level we should see 105 and then 120 within the next few months.

$IPI still has not broken out of its large basing pattern, notice the downtrend line in red.  This is a textbook triple bottom and things are lining up nicely.  A break above the downtrend line and $IPI should be off to the races.

$TRA significantly failed the breakout above 37.50 and has since been chopping around the 200 day moving average.  37.50 is a large level of resistance that goes back to a major level of support from 2008 that was broken in spectacular fashion.  $TRA has also broken the major ascending trend line in green.  I would stay away from this name on the long side, and look to play short on weakness if the sector rolls over.

It’s not hard to see that $AGU has already broken out of its base and is running, but it has come up into some resistance.  Look for a little pause here, but if the sector lights up make sure to be on the long side of this one.  I don’t subscribe to the play catchup theory, when a sector is running you want to own the strongest name, $AGU is the one here.

Full disclosure, I own $CGA in the momentum book.  This is my favorite play in the space, it’s flagging out right now, better seen on the weekly chart.  The lateral trend line in green is a major level of support which needs to be left behind soon.  Stochastics are looking great here and the momentum is solid.

$POT is chopping around a bit below a major level of long term resistance.  The chart is very similar to $MOS, although not as bullish.  Short term we may be seeing a bear flag after that second failure at 125.  This stock needs time to regroup and set up for another push.

I’m not going to do analysis on all of the underlying commodities that drive this sector, but here’s a chart of the agricultural ETF $DBA, it holds a basket of products.  The chart here is very very bullish having put in a nice long term basing pattern.  This is one that I would take a long term position in and lock it up.

Stick with $MOS, $AGU, and $CGA on the long side.  This could prove to be an excellent entry to these names for longer term position trades.

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