The first group of stocks to come out every earnings season are agricultural stocks, and they look especially ripe as Mosaic (NYSE:MOS) and Monsanto (NYSE:MON) started third-quarter earnings reports this week. Mosaic missed earnings by 18% on Tuesday, and today Monsanto reported net sales loss of 6%. This group as a whole tends to set the tone for the commodity space, so those numbers could have a wide-reaching effect.
There’s been a lot of momentum in ag stocks because of the recent drought. But when you plant something and no rain comes out of the sky, I don’t care how much fertilizer you throw on it, it won’t grow any faster without water. I’m seeing a bearish story unfold in this sector that we can take advantage of with some put options.
Click to EnlargeWe have a tale of two different kinds of stocks within the ag sector. Mosaic, for one, is really weak. It hasn’t taken out the highs of October of last year, and it’s been underperforming (first chart). We’ve got a broken uptrend line, a bear flag and resistance that it can’t cross, along with all the bearish divergence in the lower part of the chart. This is one of the weak, weak ag stocks.
Click to EnlargeThen we have Monsanto. Total opposite. It’s been rocketing from 70 to 90, creating this rising wedge pattern, though like Mosaic, it does have some bearish divergence in the lower part of the chart (second chart). It’s not a super-strong sell signal yet, but this is an outside bearish reversal that’s happening right outside new 52-week highs.
Unlike Mosaic, Monsanto has been able to break out past resistance, but the momentum is getting worse.
I wouldn’t actually play these stocks that are reporting, though — everyone already has their eye on them. However, there are some put plays to make in their peer group.
Click to EnlargeTake a look at CF Industries Holdings (NYSE:CF), which has the same kind of rising channel and bearish divergence (third chart). It could be forming a sort of double top pattern that will be ripe for an uptrend line break if it takes out this 220 area.
Look for opportunities to buy puts on CF this week.
As of this writing, John Lansing did not own a position in any of the aforementioned securities.