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AgricultureStockswithaReviewofPOTMOSIPISQM:

ByEricColeman

7/2/2011

Agriculturestocksbecamecoreinstitutionalholdingsoverthepastdecade.Thevolatilityandcrashof2008

reversedthe impressive gainsmadebetween2005-2007.Giventhesecompanies increasinglyimportant

role inworldwidefoodproduction,thesectorwarrantsattention frominvestors.Thefollowingisa brief

reviewofthesectorusingtoolsfromtheEffectiveVolumewebsiteandstageanalysis.

Pascalwrites:Itiscriticaltotradeinthedirectionofthemarket.Thismeansthatthefirstanalysismustbe

thegeneralmarkettrend.Inamatterofdays,themarketamazinglyblastedintooverboughtterritory.The

20-dayMFhasnotonlymovedupthroughthezeroline,buttheaveragehasjustturnedupafteraslowand

steadydowntrendthatbeganinlateFebruary.Themarkethasessentiallybuiltanearly5-monthtrading

range.Tradingrangescancreatebasesfromwhichrallieslaunch.

20-dayMoneyFlowIndicator:

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SectorandIndustry:

The major agriculture stocks are classified as fertilizers on the EV site. Fertilizers are a subset of the

Energy/Materials sector; therefore, an examination of the sectormoney flow trend is critical. Note the

thrust, which vigorouslymovesup through the average line and the 0 line.Additionally, this thrust is

comingfromdeeplyoversoldconditionsandmaysignifythebeginningofabase-buildinganddailyearly-

accumulationphase.

Energy/Materialssectortriggersbuysignal:

DailyStageStructureofEnergy/MaterialsETFs

XLE:EnergySelectSectorSPDR CurrentStageis1-1(EarlyAccumulation)Hasbeenincurrentstagefor1day(s)

XME:S&PMetalsandMiningETF CurrentStageis1-1(EarlyAccumulation)Hasbeenincurrentstagefor1day(s)MOO:AgribusinessETF CurrentStageis1-1(EarlyAccumulation)Hasbeenincurrentstagefor1day(s)

KOL:CoalETF CurrentStageis1-1(EarlyAccumulation)Hasbeenincurrentstagefor1day(s)

WeeklyStageStructureofEnergy/MaterialsETFs

XLE:EnergySelectSectorSPDR CurrentWeeklyStageis3-1(EarlyDistribution)Hasbeeninthecurrentweekly

stagefor3week(s)

XME:S&PMetalsandMiningETF CurrentWeeklyStageis3-1(EarlyDistribution)Hasbeeninthecurrentweekly

stagefor3week(s)

MOO:AgribusinessETF CurrentWeeklyStageis3-1(EarlyDistribution)Hasbeeninthecurrentweekly

stagefor8week(s)

KOL:CoalETF CurrentWeeklyStageis3-1(EarlyDistribution)Hasbeeninthecurrentweeklystagefor3week(s)

Animportantdistinctiontonoteregardingtheuseofstages: ...theearlyaccumulationstageshouldinfact

be viewed as a negative sub-stage and the early distribution sub-stage as a positive sub-stage

(http://blog.alphascanner.com/?p=306). Wemaythereforelookforatransitionintoamid-accumulation

daily-stage,withinthecurrentweeklystagestructureforconfirmationofadevelopingbullishpattern.

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Fertilizers:

WhatmightonedrawfromtheFertilizers20dayLPstrength?

LargePlayershaveyettoaggressivelymoveintothesector,asevidencedbythesidewaystrend

thatoscillatessincethebeginningoftheyear

AfterasharpdownturninJanuary,theaveragemovedbelowthe0lineandhasbeenslowly

trendinghighersinceMarch

IfwereferenceGraph93intheSIGRfile,oneseesclearimprovementintheChemicalAgriculturalgroup;

however, the group itself was benighted at recent attempts tohold in the neutral +70 zone. One may

thereforewatchforanyensuingstrengthtobeconfirmedbyadecisivemoveintotheyellowandgreen

zonesamidanytechnicalimprovement.(Graphslightlydistorted)

0

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1 18 35 52 69 86103120137154171188205222239256273290307324341358375392409426443460477494511528545562579596

Chemicals-Agricultural

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Billy has additionally explained that the fertilizer group is pre-leading the entire agriculture sector,

althoughthefertilizersthemselvesarepullingback.(Pleaseseeaddendumatendofreportadditional

chartscourtesyofBilly)

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SomeFertilizerStocks:

A general assessment of the following fertilizer stocks reveals that most are now at or near neutral

boundary, which coincides with the recent strength over the pastweek. POT is in a long range. MOS

displayedthemostrelativeweaknessduringtherecentcorrection.IPIappearstobebuildingabase.SQMis

thetechnicalleaderandinastrongmark-upphaseonbothdailyandweeklytimeframes

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SummertimethroughEnd-of-YearTradingPatternsinPotashCorporation(POT)2002-2010:

2002&2003

2004&2005

2006&2007

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2008&2009

2010

I examined the trading historyofPOT since2002. I viewPOT asthe defacto big stockin the group. I

wanted to see if there were any common patterns that coincided with summertime trading. A few

observationsthatcomeoutofthisdiscretionaryexercise:

In7outof9years,POTmadeameaningfulbottombetweenJuneandAugust

2008and2005weretheonlyyearsthatwitnessedlowerclosesthansummertimeprices.

Theremainingyearssawpricesmovehigherintoyear-endfromsummertradingbottoms

Onemayconcludethatsince2002,POThasmoreoftenthannotseenapricecyclelowduringthesummer.

Fundamentally,onemayinferthatsuchalowcouldcoincidewithsupplyanddemandfactorsthatunderlie

theagriculturalmarket,oroilpricesthatoftenpeakinsummerandmovelowerafterwards,resultinlower

inputcostsfortheremainderoftheyear.

In 2010, BHPmade a bid for POT. Just as XOM bought XTO, such deals likely highlight some type of

fundamentaldemandfortheproductsandservicesofthesecompanies,suchthatlargeplayerswantin.

Continuedbelow...

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POTpossessesa98EPSrating.OnMay12,theRSlinebottomedandhassteadilyrisentothe80-level,

whilepricemovessideways.Themostrecentquarterearningscameinat84centsashare,vs.49centsper

shareinQ12010.

InanoldVITdiscussion,Billymentions:

Idontbelievethereisanythingmorespecialaboutthe30-weekaveragethanletssaythe40-weekwhichis

todaymuchmorewidelymonitored.Whatmattersformewhenusingmasistoknowthatthequarterly13-week ma and its multiples (26, 39, 52) are the best ones to catch the technical

reactiontoearningscycles.ButI alsoprefertotracktheRSonthesetimeframesinsteadofthemastopick

stocks in the direction of the market.(http://forums.effectivevolume.com/showthread.php?1223-RE-RE-

Weinstein-Stages-EV-AB/page2&highlight=ev+weinstein)

NoticehowPOTfindssupportatthelong-term52weekMA:

Evenmorestrikingaretheextremetightmonthlycloses,whichIinterprettoindicateasteadystreamof

supportbuyers,especiallywhenpricesmovestowardlowervalue.Julyhasonlybegun,soany3-months

tightisonlyspeculationuntilmonth-end.

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Summary:

Theagriculturesectorbecameworthyofinstitutionalsponsorshipoverthepastseveralyears.EVandstage

analysisreveala tradingrange,where thepossibilityof a bullishrallymaybeconfirmedwith a strong

sector thrust coincidingwith animprovement inthe daily andweeklystagestructure.Theagribusiness

ETFhasbeeninaweeklyearly-distributionstagefor8weeks,soanybullishmovehigherwilllikelycome

soonifthesectorisgoingtorally.Also,the20-dayMFmustnotconfirmanaggressiveliquiditydrainifthe

marketitselfisgoingtoremaininaneutraltobullishstructure.

TheChemical-Agriculture SIGRratinghasimprovedrecently,butmusttrendhigherifthegroupistotake

onanyleadershiprole.POT,whichisaliquidgroupleader,showssteadyunderlyingsupportinthe50-

dollarrange,asrevealedbythetailsshownonthemonthlychart.Additionally,POTsRShasimprovedto

80sincemid-May,evenasthemarketmovedlower.AmidsttheimprovingRS,pricehasmovedbetween50

and55. Now atneutral value, onemaywatchforprice tohold steady and shorter-termMAs toactas

support.In7outof9yearssincethecommoditybullmarketbegan,POTbottomedinthesummertime,

usuallyinoraroundJuly.POTmaythereforeofferpositiontradersabuyingopportunityintheweeksto

come.

Addendum:

ForareviewofSIGR,pleaseseeBillyspostandlinkneartheendofthearchiveddiscussionlinkedbelow:

http://forums.effectivevolume.com/showthread.php?428-RE-IBD-Sector-and-Industry-Group-Rankings-

%28SIGR%29/page2&highlight=SIGR