By Chip Hanlon | April 24, 2008 | 11:29 AM | 9 Comments
The fundamental story behind agriculture is powerful, no doubt, and I agree with what our firm's own Michael Pento had to say just the other day in response to the notion that there is somehow a bubble in agriculture.
That said, this pullback could be pretty darned steep.
Beginning yesterday, of course, the leading agriculture names (Monsanto-MON, Potash-POT, Mosaic-MOS and others) started pulling back. Now would be a good time for investors to check themselves, step back and just look at the reality of just one of these charts, which is representative of many names in this group at the moment:
3-year chart of Potash
(chart courtesy of www.stockcharts.com)
While it's true that within a bull market there will be corrections along the way, these stocks are due for one that could be nasty enough to call the entire agriculture bull market into question.
Fundamentally, there are few holes to shoot in the long-term agriculture story, but in the short run technically, things could get messy for a bit.
What would be best, in fact, would be a sharp, frightening pullback; if in a few days or weeks the headlines have changed from food riots to stories about how the ag bubble has burst, that would likely be the time to think of piling back in.
In the meantime, those with big gains in these stocks can look to take a few chips off the table, even in the face of today's pullback. Those looking to get into this space should either be waiting for more downside or nibbling slowly.
The story is intact, the stocks are just stretched.
*Disclosure: Delta Global serves as advisor to a global agriculture portfolio which is long the names mentioned above.
*Check out my podcast, "Market Neutral"
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