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Indices Hold Strong While Stocks Crumble

With commodity-related stocks dropping, traders might be tempted to short these names on earnings, but tread carefully.


As the Dow Jones and S&P 500 continue to make new 52-week highs seemingly on a daily basis, there appears to be one major disconnect as I review in this update: The stocks that trade within the indices didn’t get the memo as we are seeing breakdowns in more and more sectors – and, even more importantly, market cap size.

In this video, I look at one sector in particular, ag stocks, and explain why I contemplated shorting Monsanto (NYSE:MON) on its earnings but ultimately decided not to.

Video Transcript

If you’re looking at CF Holdings (NYSE:CF), in January when it topped it was $235. Now, it’s $186. I played that one in 2012. We also played Agrium (NYSE:AGU) to the downside, which also topped in January and has been in a complete waterfall since then.

Are we seeing the rotation, liquidation and deleveraging happen throughout these different stocks and sectors, and it’s just that the S&P 500 and Dow are the last ones to fall? Could it be that the S&P 500 and Dow simply didn’t get the memo?

Speaking of memos, if you look at 3M (NYSE:MMM), which has been absolutely parabolic up. They make Post-It notes on which you write memos. Well, they pretty much make everything, including Duct Tape. But then, conversely, you see Caterpillar (NYSE:CAT), which looked like it was bullish, though not so much now that it’s been falling south out of a wedge pattern.

So, the industrials like CAT, Cleveland Natural Resources (NYSE:CLF) and United States Steel (NYSE:X) and the metals and mining stocks continue to perform awfully, as do the ag stocks, with the exception of Monsanto (NYSE:MON), which reported this morning. I was very close to issuing a short trade via puts on MON in the beginning of the week because there are a lot of key stocks that are going to start reporting earnings this week.

Then, I thought to myself as I was opening up The Book of Bad Ideas, that shorting MON would be a bad idea because with MON holding up so well and the others falling, what happens if it does come out with a good report? We’re just not in a position to treat the market like a casino.

InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the Open, Parabolic Options and Trending123.  For more information on which service is for you click here.

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