I've got a couple random/unrelated topics to cover so I just decided to mash them all up into one post.
1. Capitulation. Everyone and his or her dog are looking for it, and frankly, that makes me think we won't get it for some time. If everyone is waiting for everyone else to panic and sell, then who is actually going to be selling? It used to be that not many people paid attention to the Volatility Index [VIX], but as the year has gone by, you see more and more people referencing it. It now appears that literally everyone is watching it.
Apparently, there also is a disconnect between the VIX and this market tumble (more on that later). At any rate, the VIX did spike on Tuesday morning's sour open. It spiked to 31 but then quickly retreated back down, laying down a nasty inverted hammer on the chart. We'll see how the rest of the day/week plays out.
2. Mosaic (MOS) sold its nitrogen business (Saskferco) to Yara International for $1.6 billion (courtesy of Bloomberg here). I suggested in one of my previous posts that MOS was essentially 'top-ticking' or selling the top in the nitrogen trade, as they wanted to focus more on potash and phosphate. Although the stock is down on the news, this is a very buyable dip, as it will further their bottom line down the road. Nitrogen, although a strong part of their business, is not seeing the ideal pricing power conditions as their potash segment is.
Again, my thesis on these fertilizer plays all along has been to play them due to their potash exposure; nitrogen and phosphate were only added bonuses. The potash segment has very limited supply and strong demand worldwide. In addition, add in the fact that new supply cannot be brought to market for years, and you have the ideal combination for making lots of money.
3. Google (GOOG). On the chart, many of you know that this thing has a nasty gap to fill all the way down around $480. On Monday, GOOG broke down past $520 and gave me the signal to short. However, the company does have earnings coming up and that could obviously be a catalyst in either direction. So, for the meantime, instead of straight up shorting GOOG, I've put an option strangle to work. (If you're unfamiliar with a strangle, it's essentially an options position that makes money only if the underlying stock makes a big move in either direction. You can read more about it via Investopedia here).
I was going to play a straddle on this name, but GOOG options are ridiculously expensive and so even playing a strangle (typically cheaper since you're using out of the money options) is still expensive. Therefore, on Monday, I entered into the strangle of GOOG 480 Puts and 560 Calls. Obviously, with GOOG trading down again today, the put side of the trade is making money, while the call side is not. If GOOG continues to trend downward, I may just take profits before earnings altogether. However, we'll just have to see how that plays out.
I had drawn up this chart last week and intended to post it as a short, but I completely forgot. This first chart is the GOOG chart I drew last week. The second chart will show where GOOG sits currently. Since marking on that first chart, GOOG has fallen from $560 to $505, a pretty strong move to the downside. Here's the chart I drew a little while back.
click to enlarge
As you can see, GOOG has fallen pretty hard and could very well continue down and fill the gap at $480, as that is our final goal. Keep in mind though that earnings are coming up and could provide a massive catalyst for this stock to swing violently in either direction. That's why instead of just shorting it, that I have put on the strangle, to hedge myself.
4. The trend (is still) your friend. Seeing as how that phrase was the Quote of the Week for this week, I found it very appropriate to post yet another great up-trending chart in this terrible market. Central European Distribution Company (CEDC) came up while I was researching new plays in Central Europe/Eastern Europe/Russia. The following is taken from Google Finance:
Central European Distribution Corporation (CEDC) is an integrated spirit beverages business. The Company produces vodka at two distilleries in
and is a distributor of alcoholic beverages. The Company is also an importer of spirits, wine and beer in Poland . Its products are also exported out of Poland . CEDC offers a portfolio of alcoholic beverages with over 700 brands. Poland
I'll be doing more research on this name, but you simply cannot ignore a great chart. Pull up any period: 1 month, 3 month, 6 months, 1 year, and they all look the same:
That wraps up the odds & ends for now.