After looking at this it may seem to suggest that I am bailing on POT or MOS... nothing could be further from the truth. I think they resolve the strike issue and that these two names remain the very best in the market at these prices. The point I was trying to make is that the strike does generate some near term risk. You should be aware of this and have a plan in case the strike occurs and/or drags on... even if this plan is to do nothing and just wait for things to resolve. Potash price is expected to trade at least around 900 per ton in 09 and could be higher... a strike would make it much higher and might compensate for the strike to an extent and perhaps help other companies like MOS... It's just that the uncertainty here should be further examined... I will try to look at this more when I have time in weekend.
This is just extra caution and realization of near term pressure... longer term this remains the best game in town in my opinion...
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In the short-term there are three serious areas of risk:
1. The possibility of a strike or an unfavorable settlement for POT. Despite what Doyle said at the conference call this is a big big deal. The potential strike could affect 30% of the company's production. Note that the outcome is likely to affect all of the potash fertilizer stocks and perhaps all of the fertilizer stocks in general.
http://www.newswire.ca/en/releases/archive/July2008/22/c6446.html
http://news.yahoo.com/s/nm/20080723/wl_canada_nm/canada_potashcorp_strike_col
http://www.reuters.com/article/companyNews/idUKN3147003020080731?symbol=POT.TO&pageNumber=3&virtualBrandChannel=0
2. The overall market.
3. Continued sell-offs in commodities
If you are long you need to consider strategies to limit downside risk for all three of these. Regarding the most important one: the strike possibility:
One way is to go short along with your longs until the strike issue is settled. Another way, if you have enough shares, is to buy put options as hedges, a third and simpler approach is simply to lighten up the load a bit if you are in heavy and be ready to jump back in with these shares when things get more certain. This may limit upside a little or generate a small loss but it is insurance against a full-blown strike. Regardless it is important to pay keen attention to the news (check it regularly... I have been and there has been no settlement nor change so far one way or the other that I could find).
It is never a bad idea to have diversity and/or cash to balance things out. This is a great long-term story as I have repeated... however the strike must be considered.
Regarding the commodities fall... the DUG or short DIG hedge is a possibility. That paid off on Thurs for sure...
Regarding the overall market... until proven otherwise we are in a range between about 11,000 and 11,700 on the Dow... having some SDS or other short as a hedge against the longs you have may be a good idea... especially as we move towards the upper end of this range or fall through bottom support...
Overall... with any long stocks it is not a bad idea to get some short exposure either by shorting or using short ETFs near resistance areas and also if we break through support. For example, if we break through the 198 region in POT I will buy shorts as hedges... with stops if we go a bit above. This incurs some trading costs and small position losses if the stocks whipsaw but it offers insurance. In an epic storm market like this one insurance can be golden...
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On FSLR... please note that despite the great earnings there is a what amounts to an island reversal setup against the upper Bollinger Band on the charts. Island reversals are perhaps the strongest reversal signs... although it is not the classic island reversal and in this case due to earnings it would probably be short-term... you may elect to raise stops or pull some off the table... or just ride and see what happens... at least you should be aware of this... we are in an unforgiving bear market... There may be an opportunity to open a long position here on a bounce around the 50 if we get this technically expected reversal and you are interested in this... just a heads up.
"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.
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