Canadian equity investors, so blessed when resource stocks lead the market, are an anxious crowd when commodities lose their lustre. Evidence of the gathering clouds above can be found in the withering outlook for the TSX, where only 46 per cent of stocks are currently categorized as Stock Trends Bullish. Investors anticipating a summer rally could be in for a disappointing season.
When a long-term bull market shows signs of weakness and many stocks drop below their trend lines, analysts and market commentators tend to shift their recommendations to "hold." In truth, their message may be something closer to "pray."
Commodity and energy stocks present an especially tough decision: The spring correction is either an opportune time to buy these sectors on weakness, or a gloomy prelude of a more bearish commodity trend ahead. Both the S&P/TSX materials index and the S&P/TSX energy index are in Stock Trends Weak Bullish trend categories.
The chart of Agrium, the fertilizer company, presents trend-following shareholders with an important question: hold or fold? Its current Stock Trends Bearish Crossover indicator is generally an indication that investors with an eye on the prevailing market mood should consider exiting the trade.
Agrium's share price did rally from $75 to the $86 level in recent weeks, but the hovering 13-week moving average trend line represents a resistance level, now around $85, that is likely to hold back the stock. Its retreat this week to below $83, in conjunction with materials sector weakness, suggests market-timing investors should take a bearish trade position or sell.
Most investors should be content with avoiding Agrium's current downside risks, especially if its share price drops below $75.
Investors with a longer-term time horizon will put more faith in this stock's strong underlying fundamentals. A significant move by Agrium shares back above $86 suggests there is wisdom in patience.