Get Your Fertilizer Limit Orders Ready ~ market folly

Thursday, June 19, 2008

Get Your Fertilizer Limit Orders Ready

It's about that time again.... Time to set the buy limit orders for the fertilizer names. Today marked what I believe is the first day of the next round of profit taking in these names. Now, don't get too anxious right away, we still have a little ways to go in terms of retracement. But, with Potash (POT) receiving a price target upgrade today by analysts at RBC Capital Markets from $300 to $340, we most likely have seen the near-term top. Having been in these names since last August, I've really got a feel for how they trade and have developed a rinse and repeat strategy for selling off half my position at new highs, and then buying back those shares on the retracement. This strategy allows me to maintain a core position at all times while still trading around the ups and downs the name experiences, truly maximizing my profit. Having just seen new highs in fertilizer companies Potash (POT) and Mosaic (MOS), I've taken profits last week and am now waiting for the inevitable pullback. As MOS pulled back 6% today and POT 2%, I believe this next round of profit taking has begun and its time to check the charts to find the best entry points to get back into these names in the coming days or weeks.

First off, in POT, we've seen new highs of around $240, blasting past previous highs of $220. And, that is exactly where we start to look in terms of entry points. Typically, after making new highs, stocks will sell off due to profit taking and consolidation. These retracements often trend down to the past highs, where they find a level of support. Those previous highs marked places of previous resistance which have now become future support. As you can see from the chart, the green line drawn across $219 or so signals the high reached before the one we've just now hit. This is the first entry point and thus I am placing a limit buy at $219 for 1/4th a position. The other 1/4th a position I reserve for the 50 day moving average at or around $205. In terms of stochastics, if you look at the very bottom part of the chart, you will see that each time the stochastics reach oversold conditions around or below 20 (green circles), it has indicated a buying point. Obviously, right now we are very overbought and due for a correction. Thus we must wait for either our entry point at support, or for when stochastics give us the buy signal.

For MOS we have a very similar pattern. It has reached new highs of $160, blasting past previous highs of $144 or so. That level represents our starting point for looking for entries. The green line I've drawn is our immediate entry target, at around $140. This is placed at the past peak which was past resistance and is now future support. I have a buy limit order there for 1/4th a position and the other 1/4th of a position will be placed with an order around the 50 day moving average around $132. Looking at stochastics at the bottom of the chart, we see oversold conditions represent buying opportunities (green circles). So, ideally our entry orders will coincide with stochastics showing oversold conditions around 20. Do note though that with MOS specifically, for whatever reason, it often breaches the 50 day moving average and then trades back up higher, rather than bouncing crisply off the average. This is yet another trend I've noticed if you look at a longer time frame chart. So, that's something to keep in mind when placing your limit orders.

That's all there really is to it. Just set your limit orders and forget about it. Eventually in a few days or weeks, the selloff will trigger your order and you can check back in on the stochastics to gauge how much profit taking is left. Now, keep in mind that these stocks could very well throw logic out the window and continue marching higher without completing the retracement. But, I've found this gameplan to be pretty effective overall.


TraderMark said...

Do you have a subscription service to stockcharts or how are you adding lines and circles to the charts?

j. (marketfolly) said...

nah i don't subscribe, i just use the free ones and have a ghetto way of doing it.

on the charts you can click the annotate link below ya know? i draw the stuff, take a screenshot, and then crop that screenshot so its just the chart.

Risk Manager Jeff said...

I kinda like having the exact same ones drawn for me, so I dont flip flop on my own technicals.

I saw this blog posting on seeking alpha. Do you submit individual articles each time? I saw a little 'blogger-ish' type window for the article, but no 'insert pic' button. Or did you just cut and paste it in?

j. (marketfolly) said...

jeff, i originally submitted one of my hedge fund tracking posts to them and they published that. then, they contacted me wanting to allow them to just monitor my blog and post whatever posts they deemed fit. i believe mark has a similar setup.

on the main page use the "submit an article" link

j. (marketfolly) said...

oh and for images since they posted it for me i assume they just copied and pasted the entire article and the images just transferred over