MOS: Trading the Channel

NYSE:MOS   Mosaic Company (The)
Building on the prior idea, this stock remains good but fundamentally is priced well. I think we have seen a fundamental shift in demand for the shares and they will remain channel bound upward until we see a significant change. Institutions have been re-balancing their portfolios (ETFs/Mutual Funds etc) with names like MOS giving it a boost in demand (and removal of supply). However, this is a double edged sword as this will mean that as their portfolio sells off (let's say from individuals selling the ETF - or just a broad risk reduction) MOS will get picked up in the beta (as their portfolios naturally have positive beta to the major indices). For this reason, I think we can revise our view to be slightly less bullish and apply more of a longer term channel trading program. If the shares sell off institutions will top off the trade, and if it rallies it will get sold as part of risk management procedures. I will look to buy/sell channels and top off the trade by legging into strangles as they approach the channel top and bottom.

The original "Bullish Breakout Trade" remains profitable for me and I see no reason to take profits here. I don't think the agricultural crises gets resolved any time soon (or possible in the next 5 years as we enter a new cold war era) and structurally this remains a bullish trade. The latest sell off establishes the channel range.

I marked 2 interesting points to comment on how the trading structure of the stock changed. The first is the revised upward slope in an otherwise general multi-year downtrend indicating some slowing down in sellers. The other is a total change of character (capitulation at the end of the trend), marked by a long bar that clearly looks like a reversal, with good volume behind it and then little effort to move the stock up. Most likely at the end of this upward channel we will see something similar of the like.

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