As anyone who's tried to trade fertilizer stocks like Potash Corp./Saskatchewan (NYSE:POT), Agrium Inc. (NYSE:AGU), or Mosaic Co. (NYSE:MOS) already knows, these agricultural chemical names are all over the map. They're affected by their underlying fundamental values, as most stocks are. MOS, POT, and AGU are also pressured like any other commodity stocks are, and those ebbs and flows don't necessarily jive with the normal, fundamental-based ebb and flow. Finally, stocks like those of Potash - sometimes still referred to as Saskatchewan - Mosaic, or Agrium are also impacted by the ever-changing level of crop yields, crop supply and demand, and food-commodity prices. And, that market isn't in sync with the stock market or the overall commodity market. The overall result is a lot of volatility, but not a lot of predictability.... or is there?
Truth be told, most of the decisions made to trade AGU, POT, MOS, and most of the other agricultural names are based on the apparent short-term swings of their respective charts. Big mistake. It's the short-term action that's most susceptible to all those volatile forces (unique to this group) that can push and pull these stocks in all directions. When you take a step back and look at longer-term charts of Mosaic Co., Potash Corp./Saskatchewan, or Agrium Inc., however, the trade-worthy trends become clear. In fact, based on the charts of these names right now, a trade-worthy trend is right around the corner.
Put Agrium in focus for a moment. While it's true that the $92.90 level has been a nagging ceiling since the middle of last year, it's also true that AGU started to make higher lows a few weeks ago. This U-shaped reversal is now putting some serious upward pressure on the stock, which in turn is putting some serious pressure on the ceiling at $92.90. Never even mind the fact that Agrium Inc. has moved above all of its key moving average lines in the meantime. Though it hasn't happened yet, any close above $92.90 from here could unleash a ton of pent-up buying for AGU.
Potash Corp./Saskatchewan is going through almost the exact same thing, and is on the exact same cusp of a breakout. The ceiling for POT is $33.33, and has been in place since the middle of the year. The stock's made a string of higher lows in the meantime, and now the chart's to the point where either the streak of higher lows has to end, or Potash has to punch through that resistance line. The odds favor a break above $33.33, and once that happens, a few months' worth of pent-up buying is going to be unleashed.
As for Mosaic Co., it's not quite dancing with the same horizontal resistance that Potash Corp./Saskatchewan and Agrium are, but we're seeing the same basic hint - the stock wants to break out, and has logged higher lows for a while. It just needs one more nudge to get the ball rolling in a bigger way.
With all of that being said, one thing must be understood by anyone now interested in stepping into AGU, POT, or MOS based on these budding breakouts... these have to be longer-term holdings to get the most out of these trades.
The near-term stuff is just too volatile and unpredictable, so trading them in the short run is nearly impossible. When you take a step back and give these names a little leeway though, the trends are there. They just need time to get into the groove. Once they're in that groove though, the opportunity is significant. And, as the charts suggest, Potash Corp./Saskatchewan, Agrium, and Mosaic are on the verge of getting into that groove.
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