Technical Analysis Lesson - Top Agriculture Stocks
The Momentum Rider investor series continues as we take a look at the coming week's action and also more areas to look for in finding top value stocks. This week is going to be focused on value stocks in the agriculture sector. Many of these stocks are working up out of long consolidations. The agriculture stocks were hit very hard in 2011 and should offer patient investors very good profits from these levels.The agriculture stocks have good valuations and should see substantial moves up as the world economies recover and they can be viewed as both good trades and good investments. The middle class growth in emerging economies, especially in China and India, will keep the farm products and soft commodities climbing for years to come.
This week is still setting up for more selling after being very extended in the chart technicals. The markets may get an initial bounce tomorrow based on Greece passing the austerity measures but that may be it for the week.
In today’s newsletter, we wanted to show you some of the charts that demonstrate why the markets are so extended. The premise for a pullback is based on what is called a “reversion to the mean”. Whenever the statistics get too far away from the mean, the markets will work their way back towards the mean.
In this case, the markets are in a very overbought state based on many of the technical indicators we look at. In order to work the markets back to the mean, they require a pullback or selling to get closer to the mean of normal price action. As we show below, the market is still well above its 20 SMA. In addition, the oscillator indicators are all pegged up near their overbought regions. The chart demonstrates the Wilder’s RSI, Stochastics, and the Ultimate Oscillator. The RSI is very close to 70, the full Stochastic is well over 80 at a 91 reading, and the Ultimate Oscillator at a 73 reading above the 70 benchmark.
Markets can stay overbought for an extended period of time so it is dangerous to only use the overbought readings of oscillators. For example, these 3 oscillators have been overbought for most of 2012 and the last 20 days. That is why it is important to look at a few other charts and to monitor key resistance levels where pullbacks occur.
So two other important charts that we monitor are the McClellan Summation Index and the percent of stocks above the 40 SMA. These are charts that some big institutions look at so you should be aware of them. Because their big buy and sell decisions are affected by charts like these, it is educational to review them. It is easy to look back at important past turning points in the market to see how well an understanding of these charts would have dramatically helped trader and investor decisions.
Finally, we will show you the volatility index chart that is supporting an impending pullback. The volatility of the market has been going down for months and this last week it bounced off of strong support near the 16 area. And, on Friday, it brokeout from a four month downtrend line. (see chart below).
At this point, Greece’s passing of their austerity agreement is only a temporary patch. The market’s bulls are getting tired and even the “King of Tech”, Apple Inc, is extended in its great start to 2012 (see our blog on Apple posted earlier today).
The bottom line is that Momentum Rider remains cautiously bullish after this expected pullback is complete. There have been dip buyers on very small pullbacks this year. So the 20 SMA near 1320 is a likely target this week for a bounce. The reaction to a market pullback will be a good gauge on whether the 2011 S&P 500 highs of 1370 will be tested in the first quarter or not.
Using the Power Stocks Table:
(1) Risk: Conservative (Cons); Moderate (Mod); Aggressive (Aggr); Speculative (Spec)
(2) Stop: Typically use a 3 to 4% closing stop below the entry price
(3) Trailing Stops: Use the 10 EMA (Swing) or 20 SMA (Short Term Trader) for protecting gains once above it; SMA = Daily Simple Moving Avg; EMA = Daily Exponential Moving Avg.
Value Stocks - Agriculture Stocks
Today’s stock picks will be highlighting another beaten down commodity sector from 2011 but one that should rebound in 2012. There are many different ways to invest in the agricultural industry. There are stocks in food equipment, supply, biofuel, chemical, farm products, and fresh produce companies, just to name a few. Many of these stocks have formed strong bases and have had recent consolidation breakouts.
Agriculture stocks is one of our favorite investment areas as emerging market middle classes expand and the world population continues to grow. Any pullbacks like this should definitely be taken advantage of by savvy investors. The first set of stocks today will be the top income and larger cap stocks. Our next newsletter will provide some of the ETFs and more speculative agriculture stock plays. The prices are factoring in a bit of a market pullback.
Top Agriculture Stocks:
Investor Notes:
Check out the blog on “King of the Tech” for why Apple should be purchased on any pullback in the stock or market. (click here to read it)
The issue of Italy’s very big debt payment in March is going get a bigger focus now that the Greece payment is temporarily off the table. But Greece unrest will continue for years the way this is going.
Check out our newest FREE promotional offer called the MR Market Crusher Pack for 2012 (click link). It includes 5 very valuable investor products worth $600 to get you started with a bang in 2012 for your retirement account.
Another exciting pack for our subscribers and new customers is our MR Power Income Pack for 2012 (click link).
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To find out more about why our subscription services continue to crush the market since we started in 2004, go to www.momentumrider.com.
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Good luck in your trading and investing,
CEO Jalexa Trading Consultants, LLC
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