Last night I was doing relative strength analysis on stocks to the S&P 500 year to date and found out that Monsanto (MON) was the second-worst performing stock – relative strength wise – in the entire SP500 year to date.
It wasn’t that long ago that Monsanto and Potash (POT) were high-flying stocks that swing traders loved to trade while their prices were soaring into the stratosphere. That was 2008 – this is now.
Let’s take a look at the rise and fall of Monsanto and see where we are today.
Click on image to enlarge!
From 2003 to 2008, Monsanto (and Potash – a similar company) was one of the best performing stocks out there, rising from the $10 level to peak in mid-2008 at $140… before a devastating collapse took the price now to $50.00 per share.
There’s a good lesson I wanted to highlight with this stock.
First, notice the “arc” pattern. This is an important point that most new traders aren’t aware of – that when price rises in an exponential arc, the price rise is unsustainable and WILL likely collapse. Not just fall, but will probably collapse.
Look for a ‘take profits’ or ‘exit signal’ when price breaks the rising exponential arc trendline. It’s like playing musical chairs – it’s a dangerous race for safety when the music stops… and some traders never hear the music stop.
Second, notice the obvious shooting star/reversal doji candle – with the long upper shadow – for the month of June 2008. Look closely to see that the 3/10 Momentum Oscillator formed a crystal clear negative monthly divergence (lower peak) at that time.
These are signals you should NOT ignore.
Rise above your emotions (such as “This stock will rise forever!”) and look at the signals from the chart – and from history.
After a lengthy rise, there is often a consolidation or deep correction – such is occurring now. I’m labeling the “A” and “B” waves, placing us currently in a large scale “C” wave down in Elliott Wave terms.
Let’s now turn from the past to the present to see where the recent short-term levels to watch in the stock exist.
Click on image to enlarge!
Similar to the June 2008 peak, we had another short-term price peak at $85.00 that formed on a negative momentum (3/10 Oscillator) and volume divergence.
The key line in the sand – prior support at $67.50 from November 2009’s swing low and $70.00 from four ‘tests’ in 2010- was broken officially in April with a gap down and surge in downside volume (a rise in volume as price headed lower).
This was a confirmed breakout that suggested lower prices were likely – and they certainly came. Price broke the support line and carried down without stopping until the recent bounce at the $50.00 per share level.
Now we are seeing a very small positive momentum divergence, though price has since resisted against its falling 20 day EMA which lies just above $50.00 right now.
Watch the $52.00 area and the 20 day EMA for any sign of life… and unless that happens… a break under the June low at the $49.00 level signals the potential for even lower prices yet to come.
For more daily updates from Corey, visit his blog at Afraid to Trade.com