Stocks have recovered from the "taper" scare and the bulls are
back in the driver's seat, although sluggish growth in Japan
coupled with worse-than-expected retail sales at home may bring out
the bears before this trading week is over. Major equity indexes
continue to grind sideways as investors remain hesitant to push
strongly in either direction; looming seat changes on the board of
the Federal Reserve coupled with Congress re-opening the budget
debate in September have given some investors plenty of reasons to
avoid jumping in long amid the ongoing euphoria.
As such, below we highlight three commodity stocks that may offer
an attractive short selling opportunity for those looking to bet
against some of the stellar run-ups already seen across Wall
Street. The theme this week is fertilizer stocks in light of the
recent sell-off, as a result of the potash cartel breakup seen on
July 30. The world of
fertilizer stocks took a major tumble
after it became apparent that potash prices would no longer have a
floor, which inevitably prompted many to entirely pull out of this
sector as the biggest players could see their operating margins
deteriorate significantly over the coming months.
The fundamental challenges facing the stocks outlined below could
prove to be detrimental to their long-term fundamentals, which is
why we advise anyone entering into a long position to be careful of
getting trapped in a "dead cat bounce." This is a phenomenon when a
security rebounds partially after a major pullback, only to resume
its downtrend in the weeks following.
The stocks included here are deemed to be great
for three reasons; first and foremost, each of these companies
boasts a market cap upwards of $10 billion along with average daily
trading volumes topping the $1 million mark, in an effort to weed
out smaller, more volatile, trading prospects.
Second, these securities are trading below their 200-day moving
averages, thereby implying that they are in longer-term downtrends.
Lastly, these stocks are also trading above their five-day moving
averages, which makes them attractive for swing traders looking to
sell short before they resume their downtrend. As always, investors
of all experience levels are advised to use stop-loss orders and
practice disciplined profit-taking techniques:
Consider POT's one-year daily performance chart below.
Click to enlarge
POT has rebounded over the last two weeks, but shares still remain
below the high seen on July 30, the day of the sell-off. Anyone
looking to bet on a continued rebound here should set a tight
stop-loss around $30 per share because another round of selling
will likely welcome fresh lows for the stock.
Consider MON's one-year daily performance chart below.
Click to enlarge
This is the strongest stock of the three, but the fact that it is
trading below its 200-day moving average is worrisome; furthermore,
notice how MON has been posting lower-highs and lower-lows since
peaking in mid-May of this year. Given Monsanto's focus on seeds
and herbicides, the recent potash-induced pullback may be an
opportunity to go long for those with a bullish outlook on the
Consider MOS's one-year daily performance chart below.
Click to enlarge
MOS is outpacing POT at the moment, seeing as how this stock has
peered above the highs seen on July 31. Despite this encouraging
rebound, the company's long-term fundamentals could suffer more if
developments overseas lead to even lower potash prices. Similar to
POT, anyone looking to jump in long should utilize a tight
stop-loss here around $40 per share.
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Editor's note: This article by Stoyan Bojinov was originally