4 Stocks in Trouble

I see the identical pattern in 4 charts, so I am cutting back exposure to all 4. These have the makings of companies that could be beginning to break down. If I am wrong, I'll pay up a slight premium to regain exposure once the technical pattern improves. The names are different but it's the same pattern - 4 companies which are breaking down below their 50 day moving averages. Unless they quickly reverse back over and above, this could portend a more serious move downward.

I see a lot of other companies which could be approaching a similar set up with another day or two of bad behavior - i.e. we could have a lot of charts rolling over. So despite the tepid bounce-back in the indexes (which we said in the weekly roundup would not be surprising as nothing goes straight down), I am seeing some things I do not like in individual charts.

1. Mosaic (MOS) reduced to 1.2% exposure (from 2.2%)
2. CF Industries (CF) reduced to 0.6% exposure (from 1.2%)
3. Gafisa (GFA) reduced to 0.8% exposure (from 2.0%)
4. Ctrip.com (CTRP) reduce to 0.7% exposure (from 1.3%)

The first 3 names closed below this key level today; whereas the latter has been below for about a week, but since it bounced a bit today I am using that as an opportunity to cut since I missed doing so on the initial breakdown.

These moves take another 3.3% away from long exposure and into cash. Although a bounce was expected in the indexes as (a) the market lost 3.5% last week which is huge for an index and (b) the S&P 500 is now at a key long term support level, the 50 day moving average of 1377 - I continue to be cautious in the mid-term, although hazarding a guess of the day to day action is a fool's game. But I'm going to let the individual charts tell me the story; these 4 have turned (perhaps temporarily) for the worse, and there are quite a few others with potential to follow suit. I'll show the charts below:

Disclosure: Long all names mentioned in fund; long Mosaic in personal account
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Comments

[PELUSIN:]

WHAT AN STUPID ARTICLE.

I BELIVE AFTER TODAY YOU WILL THINK


I KNOW NOTHING

2008 May 28 03:34 PM

[MarkF:]

Huh? So it's your belief that when Ag stocks like MOS and CF dip below the 50 EMA that it's time to sell?

In my opinion that's a weak thesis.

These are momentum stocks - volatile and subject to $$/sector rotations in the short-term.

2008 May 28 04:55 PM

[DaveW:]

Pelusin,
Care to share AN superior wisdom with us then? Do you have the b***s to put your market moves out there for all to see? Oh yeah, your b***s are tied up admiring your own website... What AN stupid reader.

2008 May 28 05:06 PM

[Gunslinger:]

This was a good technical call, but horrible stock picks (MOS and CF). No way are the Ags (Ferts) going to tank, or even lag over anything resembling medium-term or longer. The market is not going to let these prices go back to 2007 levels. These companies are going to make up the ground they lost recently, and the ones that look the worst technically are the ones that have the most upside to gain back. You're only going to find yourself selling at the lows and hating yourself. Hell, not only did MOS and CF rip back up over their 50DMA today, they closed over their 20EMA!

The market darlings (ferts, coal, steel, oil/gas services, drybulk, et al) have serious fundamentals behind them, and no prospects of slowing. This isn't like trading technicals on the INDU, SPX, QQQQ, DBA, DBC, etc.

FWIW, buying the hot stocks on dips to/near their 20EMAs has been an unreal technical trading strategy this year. IMO, the trade now is buying calls on the above situation. The gains and accuracy % have been unreal. I could list the major watch names if anyone expressed interest (probably similar to the author's).

2008 May 28 07:48 PM

[macsadiq:]

Wow! MOS up over $8.00 today. You're not too bright are you. Why don't you keep your biased, agenda ridden, comments to yourself and don't give up your day job?

2008 May 28 10:27 PM

[sunrises:]

Hi Mark:

I heard both sides regarding current fertilizer trend. Rather than buying, I've heard Mos, Pot , Agu are going to have a slide. Perhaps, this is a good entry point and those who missed out etc. If so, which fertilizer do you recommend in value and growth?

2008 May 29 01:15 AM

[retepog:]

one year chart trend is up. low side not yet broken. i think it is going up!!!! i'm buying more commodities on weakness!!!!

2008 May 29 09:34 AM

[thinking ahead:]

MOS is a wild ride lately, but I'm looking forward to the next earnings report. Now is the time to buy this group (ag) -- not sell it.

2008 May 29 12:34 PM

[DaveW:]

Mark,
Jury still out on this call, but, in many ways I like it as I think a pull back is possible. It seems the risk of a move higher is about equal to the risk of a move lower in ag. It's amazing how much flak you get for SELLING HIGH!? Isn't that what the disciplined investor is supposed to do? In fact you lucked out in your selling on yesterday's spike. Today, all four are down even with the street's buy pressure from the revised GDP numbers.

Also, I like that you didn't remove all four positions, just captured some gains with a ~50% reduction in each position. Seems to me like a win-win considering the sector risk. We'll see how your story ends...

Always enjoy reading your thoughts and strategic moves, thanks.

2008 May 29 12:46 PM

[richandmer:]

Mark,

Thanks for the article; however, as I view the chart for mos and cf, I notice that both have seen a pattern of dropping below the 50dma before moving back up again. With this in mind, it looks like this is normal. At least I hope so.

2008 May 29 01:24 PM

[User 136518:]

I for one appreciate your analysis.
Thanks

2008 May 29 01:52 PM

[pitchforkpaul:]

Please don't bother with charts and just buy good stocks! After what the stocks did today i am happy i loaded up the day before when they went down! Why don't you try tarot cards too!!

2008 May 29 04:31 PM

[TraderMark:]

DaveW,

This was a purely technical call on a sector I've been bullish on, probably far longer than all the people in the comments section who are demeaning the call. It was not a 1 day call, and when the fertilizers have a new move, I plan to be in it; they have been very range bound for about 5-6 weeks (I sold most of my positions at what I call the Intrepid Potash top), and I got yelled at then too. About 10% higher.

I notice a lot of emotion, and when you sell people seem upset. In the ire of the commentary people seem to miss the point that if things reverse, I'll change course too. I am not ready to change course after a 1 day change and nothing works 100% of the time. In a general sense when companies break below their 50 day moving average, on a closing basis, you need to be wary. I still see a gap around $110 in MOS which I can see being filled in due time.

I sold some of my coal today today - ANR up 60% in a month - I can only imagine the ire that will draw when Seeking Alpha announces it ;)

As someone else says, its too soon to tell; I'm not a daytrader and we'll see soon enough. I think the commodity complex is ready for a pullback and fairly or not, fertilizer gets thrown in that mix. We shall see how it plays out the next few weeks.

Apparently I am the only person who when they sell a stock, it reverses - everyone else must have some incredible portfolios - I am just slogging along, trying my best. :) I'll check back in a few weeks on the group and/or if we see a nice solid breakout (up) on volume, I'll pay up and get back in.

2008 May 29 06:33 PM

[User 206425:]

While are 4 charts are similar, I do not think it is alway wise to assume all will respond (as the author believes) downward. I have held, and currently hold some of these, and look at this as a opportunity to add more for the long term.

2008 Jun 06 10:51 PM