Visually Compelling TA

Mosaic Company (MOS) has no technical merit as a buy or a hold. The 10-day, 20-day, and 30-day moving averages have been in bearish order for more than three months after reaching a high in June. Four times (A, B, C, and D on the chart below) it tested and failed to hold above its 30-day moving average. Any of these times should have been a sell signal. Even on the fourth one, a further 50% loss could have been avoided. Finally this past week it gapped down on unusually high volume (E on the chart).

While it is certainty oversold and has experienced an obvious capitulation gap down, it is too early to call it a buy. I recommend waiting six weeks of basing before considering MOS a buy. As it was downtrending it attempted to base near 105 and again at 75 but each basing period lasted only three weeks before failing. This is in contrast to the six week basing near 120 which preceded the run-up to its 163 high.

One scenario for calling a buy: when (and if) a six-week basing occurs look for a confirming upward breakout. Carefully guard this position with trailing stops and expect resistance around 70 - 75. The last basing attempt occurred at 75 so this is likely a resistance point for a resumed uptrend. It is also noteworthy an enormous amount of open interest for 70 calls (see below) exists making 70-75 a very interesting area.

Comments: View Comments |  Saturday October 4, 2008