Two critical economic events are now behind us but there are still two critical events in our future.
The market held its recent gains and failed to self destruct after the Fed failed to announce any new stimulus programs. They did dangle a carrot saying they "are prepared to take further action" and some analysts believe that could be as early as next week if the ECB and Nonfarm Payrolls disappoint.
The ADP Employment report estimated there were +163,000 new jobs added to the economy in July. That compares to estimates for the Nonfarm Payroll report on Friday at +100,000.
I was impressed that the market did not sell off on the Fed news despite the widespread belief that the ECB will also disappoint on Thursday. For that reason I am adding a lon recommendation tonight. I want to keep a very slim portfolio until next week simply because there is no way to tell what the remaining headlines are going to do to the market.
James is on vacation this week.
NEW DIRECTIONAL CALL PLAYS
Mosaic - MOS - close: 57.97 change: -.14
Stop Loss: 57.50
Time Frame: 4-6 weeks
New Positions: Yes, see below
Why We Like It:
Mosaic is a fertilizer stock and its products are in high demand in normal growing seasons. This year we are experiencing a major drought that could impact crop yields dramatically and farmers are already plowing under corn fields and soybeans.
According to Citibank analyst PJ Juvekar the last two times in recent history when we had severe droughts (1983, 1988) the demand for fertilizer actually rose by +8% for phosphate and +2% for potash. Not being a farmer I can't tell you why but those are the facts.
Juvekar said Citi now prefers Mosaic to Potash (POT) over the next 12 months and sees a near term target of $66. MOS closed at $58 on Wednesday. The company has $3.8 billion in cash that could be used for share buybacks.
I have been watching MOS for a breakout to play it in another publication. There is strong resistance at $59.75 but I believe a positive market such as we might see from new ECB action will send buyers into Mosaic stock.
Shares have not declined since their earnings in mid July. Despite the bad market last week they held their gains. This underlying bullishness suggests a positive market could break through that resistance.
All the reasoning I have given above supports a longer term play than is normally suggested in these pages. However, I believe investors are looking at longer term fundamentals as they shop for stocks that can rebound in the next market move higher. Secondly I believe they will see the underlying strength in Mosaic as a position of safety in an unstable market. Mosaic just declared a 25 cent dividend and that attracts longer term buyers.
Trigger: Enter only with an MOS trade at $60.25
- Suggested Positions -
Position: Long Sept $62.50 Call (MOS1222I62.5), currently $1.62
Entry on UNOPENED xx at $ xx.xx
Average Daily Volume = 3.0 million
Listed on Aug 1, 2012
NEW DIRECTIONAL PUT PLAYS
No new bearish plays today