That’s right. An assinine call, for sure.
Look, everytime I research these hot ag. stocks, I find another article proclaiming that we should all be investing in ag. for the long term. It seems the general consensus is that these ag. and food commodities stocks are bullet-proof, and will continue to make 52 week highs, even in the wake of a recession.
While I’m not qualified to present a contrary argument as to the fundamentals surrounding these stocks, I find it difficult to believe that farmers will continue to get rich, buy new farm equipment, and continue expanding operations while the consumer suffers death by a thousand paper cuts (from their bills, of course). Although it would certainly be poetic justice for the much maligned farmer to continue banking coin while the consumer drowns in a pool of debt. You know, because typically farmers have had to remain indebted for most of their lives to keep the farm operational while the consumer ate cheap (albeit often gov’t subsidized) food.
Anyway, I’m calling a top. Like all bubbles, this too shall pop.
What I’m expecting is that stocks making 52 week highs like [[MOS]], [[POT]], and [[CF]] are in the process of forming the head of a future head and shoulders breakdown. Please, do not make the mistake of thinking these ag. stocks are just going to rollover and die. No, the asshole dip buyer will step in, at least a few more times, before the rollover will occur. These suckers will think they are getting a bargain. You will hear the pundits discuss the buying opportunities, as they simulataneously unload the positions they’ve been pumping for the past year.Â
If your thesis is similar to mine, then what we want is to look at some stocks within the sector that are already exhibiting significant weakness. While stocks like [[MON]] and [[ADM]] are exhibiting weakness, there are still asshole dip buyers waiting on the sidelines. As always, when shorting stocks, we want to stay away from those that have dip-buyers waiting. Therefore we will look for ones trading beneath or right at the 50 day average, as the dip-buyer will likely have moved on to stronger names.
I will continue to monitor the technicals in Agriculture Chemicals and Farm Construction Machinery. If I’m wrong about the top, then we should see all these stocks begin to make 52 weeks highs, similar to [[MOS]] and [[POT]].
great analysis woodrow, thanks for the fine work and comments, who would have thought the agri’s are gettin ready?
BTW, do u think my GDX pick for the final 4 contest is any good from a TA point of view?
wood,
I don’t disagree with you on the frothiness of the sector, however there are a couple of large trends inplay;
*Ethanol subsidies [from Federal Gov.] and the move to corn production away from other commodities.
*Tarriffs against Brazilian sugar ethanol.
*Poor harvests, increasing demand from Asia-Pacific region for broad based foodstuffs. Food is a sticky cost, and inflation resistant, although not inflation proof.
All bubbles eventually pop, and this will be no different, however the catalysts will need to be withdrawn, or made redundant [new technology]
jog
Nice write-up. I think the ag bubble is still developing, though. If alternative energy mandates are going to be met, we are going to need twice as much ethanol in near future. Also, I know this is a sort of a wild-card, but weather related events and disease will be more of a problem in the next few years.
Heres a good article on thats bullish on Ag:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aUIPybKj4IGs
Another good one here:
http://www.economist.com/displayStory.cfm?story_id=10733130&fsrc=RSS
See, when two die-hard bears are bullish on ag., I’m either right, or really, really wrong 😉
Seriously though, those are good articles iio.
But, does it not strike anyone else that it seems too perfect to be true? It is my belief that in times like these, something usually comes along and leaves everyone saying, “Damn, why didn’t we consider that?”
Maybe it is good weather and record harvests.
Anyway, the economist hints at the same thing, writing,
“Nonetheless, the prospects for demand must have diminished at least somewhat as the world economy has slowed, and the outlook for supply has not worsened dramatically in the past few months. Hence some other factor must be at play. Many analysts blame speculation. As falling interest rates, tumbling stockmarkets and contracting house prices drive investors out of bonds, equities and property, the argument runs, there is lots of money looking for a new home. And since commodities have produced such lavish returns in recent years, and have weathered the recent turmoil relatively unscathed, they are an alluring option.”
This is good though. I like a good debate.
Wood,
Thanks for the counterpoint.
No doubt, “a” top will occur. I think it’s too early still to call “the” top.
Major trends are in place for the Ag sector. As they say, “battleships don’t turn on a dime”, or some shit to that effect.
These run ups can get over extended, especially when bulls have very few choices to place their bets. Capital finds its way to where it can get the best risk adjusted return. Right now, that appears to be Ag.
We’ll get corrections, which are normal and healthy occurrences in a group of stocks that are in major uptrends. Just don’t mistake those times for “the” top. We still have a ways to go, imo.
I’m all but out of VMI. Go ahead, short the sucker.
I hate Ag. I want it to collapse.
Who in their right minds wants to pay $1 per bagel?
“assinine” [sic]
Alpha, seriously, I didn’t read your post until after I had written mine.
Honestly, I agree with the battleship turn on a dime stuff.
Still, something about this trend seems too easy.
Maybe the farm dude, breakingout17 or whatever his name is can shed some more light on the issue.
Danny, intentional misspelling
Wood, if you are calling a bubble in Ag, you are calling a bubble in global population & global economic development.
Just know what the implications are.
This is very serious stuff.
Not a game, even thought we must play it as one.
Great post Wood, Thanks for the charts.
Juice, that implication was not lost on me.
However, I disagree in that I do not believe that bubble in ag. signifies a bubble in global growth and global population development. The converse of the argument would be that a decade ago global growth was slowing and popluation growth had stopped. Of course that is untrue.
Good point though, in that the argument then becomes that one should be a permabull, not a bear, as we would be betting against global growth and population expansion.
Wood, only the sick, degenerate & twisted bears wish armageddon upon this planet, so that only they may survive in their bunkers & arise as the New Kings from the ashes.
Why do you think they are called bears? Perhaps because they hibernate in caves during winter as their human counterparts have their underground bunkers filled with 10 years worth of provisions.
It is one thing to root for the bulls in the end and another to walk off the cliff with the other lemmings.
Hopefully, we are all permabulls at heart.
I thought it was because they like to shit in the woods and wipe their asses with bunny rabbits.
Anyway, agree- I’m a permabull at heart.
No More Free Breakfast
$1 bagels?? Fugettaboutit.
Our local bagel store has discontinued a 15-year old practice for frequent bagel buyers. $50, then $75, then $100 of receipts were good for a dozen free bagels. Gone. Cause: escalating price of flour. Damn Chinese, even screw up free breakfast. Current price $.75, up from $.35 just 12 months ago.
Wood;
Don’t forget about price controls. China is already putting them in place. Great charts this week!!!
I think being short AG works with a retest of the Jan lows. AG will not hold up in a broad market sell off. I am short AG since .50 of the peak.
Funny. Out of all these stocks, only the one I’m short is green today.
Wood …. got a read on my ag/mining play TWI?
http://biz.yahoo.com/bw/080222/20080222005604.html?.v=1
Wondering if it’s a sell here or if you see more upside?
Never mind … I’m out.
Wood, are there any inverse AG/FERT ETF’s, long or inverse that you know of?
Wood,
Any inverse ETF we can use for shorting AG?
Hey guys, I don’t know of any inverse etfs.
Check out DBA, DBC, and MOO for etfs that you could always short.
Fly,
Who wants $1 bagels – government.
Obesity – expensive food – problem solved.
Back to rich and fat.
I actually read research saying that it is more costly for obese people to lose weight and live a long time than for them to get fat, get sick for awhile, and then die. Harsh, I know, but don’t take it personally…it is just statistics.
Ouch @ VMI short. Guess its hard to fight the trend.