Steady as she goes...

Brief update this a.m.: POT reports $2.82 and ups guidance. Steelworkers strike, which was known about, was used perhaps as justification for the analyst downgrade. I bough more MOS this morning at 126 and also shorted an equal proportion of MOS at 126 for a nice hedge... the short was recently covered. The fundies here are oh so sweet but that hasn't kept the boys from using short-term manipulation to take out stops and have a nice little day trade on the short side. If you have significant shares in these companies you understood the cartoon above... certainly with this pre-planned downgrade manipulation you understand... It's kind of embarrassing... how do you downgrade a company that just did over 300% of last year's earnings and has guided yet again higher? That's the Street... the CC is at 1.......
Note: in order to view the post I often publish it first, then make necessary corrections a short period later. This post was edited/corrected a bit...

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The post is organized like this:
1. A discussion of the fertilizer stocks (POT reports tomorrow)
2. A look at the overall market and other stocks... ready for a move back down?
3. Some notes on ISRG... great company, great quarter, 10% is 10%... if you did better more power to you... just understand the logic and how it may help you...
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I had a few moments to post so here are some salient points:

• I'm still holding my positions in POT and MOS and added a tiny bit more POT at 206. The market was oversold and it is natural that money is flowing into some of the heavily oversold and shorted names. Lower oil price is dragging down commodity stocks as well. This has very little to do with the bull market in Potash fertilizer stocks as even slightly lower grain prices are more than high enough to make the escalating potash prices worth it for farmers, according to the conferences on the Potash website. The biggest risk near-term is a miss by POT tomorrow. This may occur despite the robust growth because the estimates are so high. The estimate is for $2.61. The numbers were $.88 last year and $1.52 last quarter. That is a huge difference on both counts. Also the enormously higher potash pricing ($1,000 per ton) will not be reflected on last quarter's results, even though the prices still increased a lot apparently. For that reason the guidance is as important as the numbers.
• I read this blog that brings up the possible concern that the high natural gas prices will influence margins for the fertilizer producers. Potash prices have quadrupled since last December. Natural gas? This chart shows prices directly. Worst case it went from around 9 to 12, with an average price of 10.5... which represents an increase of about 17%. Potash, nitrogen based (ammonia and urea), and DAP fertilizers have gone up much much more. As a result I do not think the natural gas prices will affect POT earnings much at all nor MOS earnings to an appreciable extent this quarter. If in the future the natural gas prices keep rising (likely... though they have dropped off a cliff recently) and potash prices do not this could be an issue but William Doyle (CEO POT) has mentioned that there has been no demand destruction whatsoever with higher prices thus far.
  
• There is a possibility that we are rotating out of commodities temporarily and that all will be sold off even in the face of good earnings. BTU and XTO are examples today. However, POT has the potential to be market mover one way or the other...
• The key support areas, as best demonstrated on the Point and Figure charts on stockcharts.com, are 206, 198, 190 for POT, 126, 120, 112 for MOS. Whether I decide to sell if these levels are breached after the call (after hours tomorrow or on Fri) really depends on the call, the guidance, etc. This remains the best fundamental growth story there is. I am hesitant to sell below 117 region on POT and 132 region on MOS and will only do so if I think that it is justified and/or the shares will fall and can be picked up quickly again when the oscillators turn. Know the key support resistance areas if invested and decide a plan today that also incorporates the results tomorrow if you hold POT and/or MOS.
  

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Other stocks and the overall market...
As I mentioned last week the market was very much oversold and I did not want to be short. Lots of short-covering and now buying has occurred, and we have come quite a bit off of the 11,000 region in the Dow as money has flowed back into oversold names, some of which were sold down much more than they should have been. I thought FXI would do well and it has. UYG has also come up nicely. Please note though that we have had a nice short-term rally in many stocks and the 11,730 region in the Dow and the 1325 region in the SP are very serious support turned resistance lines. We are getting close to these. UYG bounced off of the 50 day SMA as well. Support is assumed to hold until it proves otherwise and the same is true of resistance. I think we are very much set up for a short-term move back out of many of the names that have rallied recently and back into some of the commodities. Of course, earnings will have a large say in this. At the bottom of the post are the charts of the Dow Industrials, SP, and UYG. If I were long financials I would be taking gains right now on this bounce. The bears have not left the building... however I do believe we were oversold at Dow 11,000, at least until/unless the global economy slows further.
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One more note: I compared DIG and POT and MOS and there is a correlation there. On a pullback in DUG it makes some sense here to use DUG or short DIG as a hedge. This has very little to do with fundamentals... I have felt that oil price has been a bubble for a while, while fertilizer prices are much more demand driven. However, it is true that when oil goes down other stocks go up and money needs to be sucked out of commodity stocks to short-cover and buy other stocks. If I do sell POT or MOS at these prices it will only be to cut losses short (I would be down about 10% at these prices) and to jump right back in with cash when the charts turn and the indicators show the reversal back up. I may ultimately make more this way then if the stocks goes up tomorrow... depending upon how far the prices drops and how low I can get back in. The critical stop support points, I want to reiterate, are 198 for POT, next stop about 190, 120 for MOS, next stop 114. Just to prove the point that the P&F charts work take a look at the lows for today on POT and MOS.
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ISRG: I want to comment briefly on this. I suggested a sell before earnings because I recommended to watch this stock at 250 based on a play into earnings. That was the objective... mission accomplished with a 10+% gain in a few weeks.

ISRG is one of my top companies for the long haul... I mentioned I would not sell in a different market. They blew the cover off the ball... hats off to them... If I had the time to closely study the company and felt I knew something the market did not (as I felt was the case with CMED) I may have considered holding... but I did was not in this situation with ISRG and therefore did not want to take on the risk of a RIMM or AAPL blow-up. Return is a risk-weighted phenomenon. That is to say that a potentially 20% gain that is only 40% likely to occur is .2 x .4 = 8% upside vs a 10% gain that is already in the books is .1 x 1 (100%) or 10%... so the 10% is better. These numbers are just provided for exemplary purposes to illustrate the point that the high reward of holding ISRG through earnings in this situation had to be weighed against possible downside if they missed. In this market the bears would have been all over it so I personally didn't want to risk it with a company that trades at a forward PE over 40. I would take missing a move in this situation over getting burned... unless I felt the chances were very high that they would outperform. As I mentioned on the last post... I provide the insights, background, and knowledge that I have. It is information that attempts to help. Ultimately you of course need to make the final call and take responsibility for that call... just like we all do. I often find that blogs, as opposed to the mainstream television, radio, or newspapers, offer the real deal. Hopefully the 'Rose' provides you a fresh take that contributes to your ability to make the best possible decisions...

Le Charts...






Notice how we bounced off of the 50 day SMA in UYG and are approaching the upper Bollinger Bands in the Dow ($INDU) and the SP....

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