Mosaic Warns, Stock Is Up

This is the type of action we need to see market-wide to begin to return to "investing", rather than putting chips down for a 2-48 hour trade. Mosaic (MOS) warned on sales yesterday, and today the stock is up. When this happens, we begin to believe all sellers are finally done and bad news is finally starting to become priced into stocks. At this point, so many global growth/commodity stocks have fallen 80-90% from peak (which was this summer), at some point the problems that still lie ahead have to become priced in.

From my end, I'm taking a hatchet to future earnings estimates, cutting them mentally in half, and then seeing dirt cheap stocks even on that Armageddon scenario. For example, take Mosaic's (MOS) $10 EPS, chop it in half and you have $5. Then the stock trades at 5x earnings. Do I really think earnings will drop by 50%? No. But even with my worst case scenarios, I have about 100 stocks out there I see trading in 2-6x PE ratios. Not that it matters, because fundamentals mean nothing....

Mosaic also said soft market conditions drove down second-quarter phosphate sales volumes to about 1.3 million tons for the period ended Nov. 30 -- about 800,000 tons lower than the volume sold in the prior quarter. The company expects third-quarter sales volumes to remain soft, although it expects a strong recovery in the fiscal fourth quarter.
Potash sales volumes for the second quarter were approximately 1.7 million tonnes down from 1.9 million tonnes in the first quarter. The average selling price was $525 per tonne, below company's forecast range of $560 to $620 per tonne.
Mosaic also withdrew its fiscal 2009 sales volume guidance for phosphates and potash, citing the "uncertainties in the global economy."
"Several factors have impacted worldwide crop nutrient demand, including lower grain and oilseed prices, a late North American harvest, congested distribution supply chains, and the unprecedented global economic and credit downturn which has seen business moderate in nearly all sectors," Jim Prokopanko, chief executive officer, said.
This is some serious weakening and we have to rethink our exposure - the phosphates weakness is one thing but we are even seeing weakness now in potash. The negotiations with China and India this year should be interesting. We are seeing "withdrawal of guidance" everywhere across this market which makes the future that more cloudy; how can you tell where a fair value is for the market when earnings are now a complete guess?

I did cut some of this name yesterday (along with a few other names) once the S&P broke 840. As we said coming into the week, we moved a lot of our long exposure from individual names to an index ETF since we do not have stop losses available to us. Therefore it was easy to parachute out of the index ETF once the market began breaking down. Specific to Mosaic, the chart is abysmal with a series of lower highs, and it appears until the market changes from a mindset of deflation to future inflation commodities remain nothing but an area to try to game for a quick 25% game if you time it perfectly for a 2-48 hour trade.

This remains one of my favorite long term sectors but seeing such weakening here, it reminds me that the only safe area might be those few companies whose sole customer is the US government.

As a side note, the portfolio weightings found in the right margin no longer reflect how we are positioned although I just updated it this weekend; as I said, once we break S&P 840 we have to become bearish again, so I adjusted accordingly. One has to be so very nimble in this market as conditions can change dramatically in 4 hours. Of course, like clockwork today we broke right back above S&P 840, which is worrisome because if this pattern begins again we lose the one thing working: technical analysis. And we return to the early October 2008 scenario where nothing works except throwing darts and guessing. Not that we are too far off from that right now. But in theory, once we break S&P 840, we "should" continue down. I've adjusted the portfolio to take advantage of that scenario.

We're currently at S&P 825 after flirting with 850 just over an hour ago? Volatility remains wicked. With gaming hour (3 PM) not far off, this means we could close up at S&P 900 or 800 - who knows. The textbook however, would point downward.

What remains troubling is that the S&P chart mimics Mosaic above - a total inability to break over the 20 day moving average... this is the weakest of resistance areas and even in a typical bear market you retrac back upwards to the 50 day moving average before selling back off. Since late summer we do not even make the attempt on the 50 day moving average and falter at the 20 day... that level of weakness is really telling..Trader Mark in seeking alpha