Agricultural Stocks May Head Even Lower (POT, MON)

Agricultural chemical companies may resume major downtrends after working off oversold technical conditions.

Agricultural chemical companies have underperformed in this bull market cycle and could head substantially lower in 2016, offering profitable short sales. However, the sector is working off an extremely oversold technical condition, and the best short entries should come at higher price levels, after testing at long-term moving averages.

These stocks got hurt badly during the 2007-2009 bear market because the agricultural industry’s performance is levered to emerging market economies that contracted through that period. Conditions improved into 2011 and 2012 but have deteriorated since that time, primarily due to stalling growth in China and deep recessions in Russia and Brazil.

The recovery effort also ran into a brick wall when potash prices collapsed four years ago, following the breakup of a Russian-Belarusian marketing cartel that had limited the nutrient’s supply. That commodity’s decline continues to escalate while the sector faces additional headwinds from the broader raw material downtrend that’s infected world markets since 2014.

Potash prices have failed to bounce so far in 2016, continuing to hover near eight-year lows despite healthy upticks in other beaten down commodities, including metals and energy. This lagging behavior waves a red flag that reinforces the bearish outlook for sector operations this year and beyond. It also tells us that current recovery efforts should eventually fail.

Potash Corp of Saskatchewan Inc. (POT) sold off from 81 to 16 during the bear market and bounced up to 60 in 2011. It then traded sideways for more than two years before breaking support in the upper 30s in 2013. The stock tested new resistance into early 2015 and rolled over in a steep decline that reached the 2008 low in January. It built a small base at that level and headed higher this week. …read more

Read more here: Agricultural Stocks May Head Even Lower (POT, MON)

Category: POT, MON, AGU

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