Despite the flat market action since Tuesday, a number of stocks saw interesting activity that drove their shares sharply to the upside. The two sectors that saw the most noticeable action were the agriculture stocks and the education stocks.
The education stocks have come under scrutiny of late. Jim Cramer said in the Feb. 5 episode of Mad Money that the charts for a number of names in the space look toppy. Investors are also concerned about valuations in the group, which is evident by the heavy short interest in many of the names like ITT Educational Services (ESI) and Strayer Education (STRA). Many investors think the good news is already priced into the educaiton stocks and the best days for the sector are already behind us.
Even with the current bearish market sentiment surrounding the education group there are still plenty of reasons to be bullish. It’s hard to deny the trend of people going back to school as layoffs continue to mount. Plus, the education space is one of the only sectors that’s actually hiring these days.
The agriculture sector was in hot demand on Wednesday. Some decent gains were seen in names like Potash Corp. (POT) and Intrepid Potash (IPI). There are a number of reasons that investors could be jumping back into this group. One major reason is the “reflation trade.” Evidence that we are coming out of a deflationary enviroment is starting to sprout up all over the market place. Some examples include the run in gold to seven-month highs, the huge rebound in the Dry Baltic Index and the market reaction to sell U.S. equites as the economic stimiuls plan was signed into law.
A major drought that recently hit China has also helped the ag stocks see some strength in the short term. What is more interesting however, is the interest in the group by some Wall Street “whales” like George Soros.
With all this in mind, let's take a look at four charts in both sectors that could be setting up for big moves.
1. Potash Corp.
Shares of Potash Corp. (POT) look poised to continue to run higher. The stock has found support around the 50-day moving average of $75.31 a share and the stock looks ready to test some previous overhead resistance at around $87 a share and $95 a share. Looking at the chart below, you can see that the stock has made higher lows since December 2008, which shows that institutiaonal buyers are supporting the stock at higher prices everytime the shares pullback.
This stock could be setting up for a huge run higher if it can trade through those previous levels of resistance, which it looks ready to do. It’s also worth noting that hedge fund manager George Soros has dislocsed in a recent quarlty filing a increased stake in Potash. Soros might be positioning his hedge fund in Potash for a trade on the potential return of inflation in the near future.
2. Agrium
Another compelling chart in the agriculture sector is Agrium (AGU). Shares of AGU are displaying a number of bullish trends that could help push the stock significationly higher. The stock has found solid support around the 50-day moving average of $33.42 and is now trading well above that key technical level. The stock has also been making higher lows December 2008 and volume has been expanding on the up days.
Watch for shares of AGU to potentially trade through $41.29 a share for signs of another bullish run higher. Plus, if you like the chart for AGU, then you might also want to consider other ag stocks, such as Mosaic (MOS), Terra Industries (TRA) and Monsanto (MON).
3. CF Industries
The chart for ag stock CF Industires (CF) is possibly the best looking name in the space. Shares of CF have bounced sharply off the 50-day moving average of $49.92 and are now approaching some previous overhead resistance at around $57 to $57.50 a share. If the stock can crack through this level it could be setting up for a significant run higher. Volume has also been expanding on the up days as the stock has made higher lows for almost the entire month of February.
It’s also worth noting that over 5% of the float is sold short and the outstanding float is very small at only 56 million total outstanding shares. This combination of a small float and reasonably high short interest could lead to an explosive short squeeze if the stock can crack through the previous overhead resistance.
4. Apollo Group
Shares of private education provider Apollo Group (APOL) could be setting up for a short term run higher and a test of previous overhead resistance at around $90 a share. The stock has found some support at the 50-day moving average of $80.27 and now looks ready to make a move higher. One major problem with the chart of APOL is the volume patterns.
The up day volume has been trending lower since the beginning of the year which is a bearish indicator. For the last two months, shares of APOL have been trading in a range from around $77 a share to $90 a share as buying interest has been decreasing every time the stock trades towards the upper end of the range. If the stock trades back up to $90 a share it will need to breakout at that level with expanding volume to return to bullish trends. However, if it fails at that level it would mark a tripple top and shares of APOL would most certainly head lower.
Another bearish indicator would be triggered if the stock falls below some previous support at around $77 a share. Some other educaiton stocks with compelling charts include DeVry (DV), Corinthian Colleges (COCO) and Career Education (CECO).
To learn about a few more education and agriculture stocks with compelling charts, visit the Charts of the Week portfolio.
Also, if you want to improve your own technical stock-picking skills, you can share ideas and pick up some tips on Stockpickr’s technical-analysis forum.
Posted on Feb. 19, 2009
