Agricultural nutrients producer Mosaic Company (NYSE: MOS) popped back on my radar earlier this week as many of its competitors began breaking through near-term resistance areas on their respective charts.
On Feb. 11, MOS reported a drop in its fourth-quarter earnings. The company earned $129 million, or $0.30 per share, compared with $616 million, or $1.44 per share, a year ago. However, the stock responded with a 2.4% rally on the day, getting the ball rolling for a more meaningful breakout through resistance.
The day after the earnings report, Morgan Stanley (NYSE: MS) reiterated its "equal weight" rating on the stock in a marginally upbeat note.
Finally, on Feb. 14, it was announced that Mosaic entered into a share repurchase agreement with Cargill family trusts to purchase approximately 8.2 million shares of Class A stock. This falls under the $1 billion share repurchase authorization that the company announced during its earnings conference call. The repurchases are taking place in two tranches, the first of which has already happened and the second is slated for mid-March.
Share repurchases are often viewed as a positive sign, as they show a company's confidence in its own performance. Mosaic's share repurchases should be a little wind at the back of the stock, which as I will discuss shortly, is looking rather itchy to break through an important technical barrier.
On Jan. 6, I recommended a long-side trade in competitor Potash (NYSE: POT), which reached its price target just seven trading days later. Yet the sector as a whole wasn't quite ready to push higher, and we saw another consolidation phase in fertilizer stocks. That is how this business works. Sometimes "breakouts" need several attempts before they can really run. Patience, more often than not, gets rewarded in one way or another in the end.
With that in mind, let's turn to the charts to get a good understanding of the bullish setup in the stock.
The weekly chart looking back to 2009 shows MOS has struggled to make a decent up move since 2011.
The stock has crucial multiyear support around the $40 area, which is important for traders to watch. A break below this level would spell serious trouble.
On the upside, MOS faces major resistance dating back to 2011, where the downtrend line will eventually meet up with the stock. That resistance currently does not come into play until roughly the $56 area.
Keeping the bigger picture in mind, let's dissect the near-term chart, which has plenty for us to sink our teeth into.
First, note the higher low from December and January versus the August lows, which forms a double-bottom. Both points of the double-bottom occurred just below the 100-day simple moving average, which was just weak enough to get the bears salivating and conviction longs to press their bets for easy money from the shorts.
In February, MOS settled into a multi-week sideways consolidation phase, which took place right below lateral resistance dating back to November, and lined up just below the downsloping 200-day moving average.
On Feb. 28, MOS finally broke above its 200-day moving average for the first time since June, and a couple of days later, also broke past lateral resistance in the high $49 area. From here the stock looks to have enough upside momentum to move into the mid-$50s in coming weeks.
Action to Take -->
-- Buy MOS at $50 or higher
-- Set stop-loss at $48.29
-- Set initial price target at $54 for a potential 8% gain in 3-6 weeks
This article originally appeared on ProfitableTrading.com:
Chart Says This Fertilizer Stock is Gearing Up for a Big Breakout