Major U.S. equity indexes have managed to snap the losing streak that plagued markets since the New Year and February is off to a very green start. Upbeat corporate earnings have helped fuel the rebound on Wall Street while a relatively quiet political front has also helped to bring back certainty. Last month’s employment report was a mixed bag, and although investors reacted positively in light of “oversold” conditions at the time, the next labor market data release will likely be scrutinized more heavily as investors look for clues surrounding the Fed’s next move [for more commodity futures news and analysis subscribe to our free newsletter].
Amid the ongoing stock market rebound at home, many remain hesitant to jump in long ahead of the potential budget debate that could arise at the end of February. Furthermore, many view the current rebound as merely a “fakeout,” and hopeful bears have their eyes set on lower-lows for the broader market. As such, below we highlight two commodity stocks that may offer an attractive short selling opportunity for those looking to bet against some of the stellar run-ups already seen across Wall Street.
The stocks included here are deemed to be great trading candidates for three reasons. First and foremost, each of these companies boasts a market cap upwards of $1 billion along with average daily trading volumes topping the $1 million mark, in an effort to weed out smaller, more volatile, trading prospects.
Second, these securities are trading below their 200-day moving averages, thereby implying that they are in longer-term downtrends. Lastly, these stocks are also trading above their five-day moving averages, which makes them attractive for swing traders looking to sell short before they resume their downtrend. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques [see How To Lose Money Investing In Commodities].
Mosaic Co. (MOS)
Consider MOS’s one-year daily performance chart below.
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This stock has been drifting higher within a slightly upward-sloping trading channel (blue lines) since sinking below $40 a share in early August of 2013. While the medium-term trend at hand is encouraging, and even suggests a potential reversal, we are more worried about the historical resistance levels here; notice how MOS failed to establish support above $50 a share (red line) on several occasions, most notably on 11/18/2013 and mid-January 2014. Until MOS establishes definitive support above its 200-day moving average (yellow line), we advise taking a nimble short position if the stock fails to surpass resistance around the $50 level.
Potash Corp. (POT)
Consider POT’s one-year daily performance chart below.
Click to Enlarge
This stock boasts a very similar technical setup to the Mosaic chart directly above. POT has been quietly advancing higher within a crude trading channel (blue lines) since sinking below $30 a share at the start of August last year. The stock’s gradual ascent is certainly encouraging in light of its steep sell-off seen in July of 2013; however, POT has failed to establish definitive support above $33.50 (red line) on several occasions, leading us to believe that the bears might swoop in soon. We advise taking a short position if POT fails to settle above its 200-day moving average in the coming weeks, in anticipation that it will once again re-test the lower half of its range between $32-$30 a share.
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Disclosure: No positions at time of writing
