What an interesting selloff. We’ve seen weakening momentum across the entire S&P 500 – but materials are taking an absolute beating at the moment.
Mosaic (MOS) is a mass producer of potash – perhaps one of the most important agricultural components in the market.
Shares of Mosaic stock are now back under $43 to lows we haven’t seen since July 2022, December 2022, and mid-March. There’s no shortage of people who want to step in and buy the stock right now.
But momentum is negative. And there’s no telling what might be in store for this market over the next 28 days.
The debt ceiling crisis is brewing. Japan’s central bank might alter its policy (which would hurt U.S. bond prices). The Fed is about to raise interest rates by 25 points. And earnings season could deliver several surprises and concerns about stock valuations.
So, how should we approach a must-own stock for the long-term?
The answer lies in trading it around momentum.
Keep an Eye on Momentum Readings
Mosaic stock has experienced several wild swings over the last 12 months. Shares traded near $80 last April at the height of the Ukraine-Russia war.
They subsequently collapsed back to the low $40s. Then we had another move above $60. And then back down to the low $40s.
This is a rather wild period of price oscillations. Institutional investors are taking advantage of price weakness, buying shares at suppressed levels, and then bidding these stocks back toward overbought territory.
So – I recommend you keep an eye on two specific price indicators for momentum. (Go here for a similar analysis I did for GLD earlier this month.)
The first is Relative Strength Index (RSI), which measures price trends over a 14-day period. If a stock’s RSI falls to 30, it’s oversold. If it jumps above 70, it is overbought. We see a history of selling the stock over that level – even if it’s in an uptrend.
Now pay attention to the RSI levels in the Mosaic stock chart below. As you can see, there are distinct periods where we move toward that 30 level. And that has been the time to step in and buy the stock.
But you want further confirmation. I use a lot of other indicators to help build conviction around oversold and overbought territory. Those include the MACD and the ADX. But the Money Flow Index (MFI) is another killer price indicator incorporating volume into the reading.
The Money Flow Index has a little bit of a different reading for overbought and oversold conditions.
Overbought conditions on the MFI are 80. Oversold is 20.
So, again, looking at the chart above, you’ll note that momentum can and should translate into a period where both are simultaneously low. That’s important. Because when you reach a period of negative momentum and oversold conditions, it creates an interesting time to qualify your trades.
In the case of Mosaic stock, it trades at attractive levels. Its PE ratio sits under 5, and forward earnings are under 8.4. The price to book is at 1.25, it has a Piotroski F score of 9, a Z score of 3.2 (meaning little debt concerns), and a price-to-Graham number of around 0.5.
To be honest, I’m very intrigued by this opportunity.
But I want to wait for it to drop further. If this negative momentum pattern takes us lower – perhaps down to the $40.00 level, that will create an opportunity I want. I want to consider selling puts down around $37.50 or even $35.00.
Not only can I buy a stock with a history of strong rebounds at a much lower price, but I can also generate income or benefit should the stock turn around and rise higher.
Engaging in this level of trading can be very difficult when fear is building. But these are the optimal times to sell the insurance to other people on stocks you want to own.
This is one of my favorite strategies for negative momentum. And as we approach next week, I’ll add a new value stock to our Tactical Wealth Investor. And when you join, you’ll also receive my breakthrough report: “How to Trade Negative Momentum.”
Pick up your copy today, and let’s prepare for another round of momentum reversion in this market.
On “Roundtable” Live Tomorrow
“Roundtable with Don Yocham” is happening tomorrow at 11am ET. Don’s guests will include Roger Scott, Celeste Lindman and Jack Carter. Here’s the agenda:
- Earnings season continues with 178 S&P 500 companies reporting this week. How bright are recession signals flashing?
- The Fed is on deck again with a rate decision due next Wednesday. How will market experts expect to play it and what does that mean for stocks this summer?
- Exchanges adapt to market conditions. And they’ve adapted to tremendous uncertainty with 0DTE options and now even 1-day VIX contracts. Jack will unpack that.
- Celeste will share how she makes money in any market with her “go to” tool that has served her well since 2012.
Be sure to check out the live FREE event, right here, at 11am ET.
To your wealth,
Garrett Baldwin
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
Market Momentum is Red
We are clearly in red territory, and Tactical Wealth Investor members are seeing our position on the S&P 500 SPDR ETF (SH) heading in the right direction. This market shows weakness we haven’t seen since our negative momentum event in December. Remember, cash is a very good friend in this environment.
