Hanfeng seems to have a nice niche but has been unable to break through resistance at $8. I thought it might be worth taking an opening position in anticipation of higher fertilizer demand. Your thoughts appreciated.
Good eye on the chart! You picked up the resistance at $8 on Hanfeng Evergreen Inc. like it was second nature! You have also identified one of the factors that could take the stock higher which is higher prices for fertilizer. Lets take a closer look at HF and see what we can deduce.
The one thing that you should keep in mind is that the period of seasonal strength for the agricultural sector is from August to September, when the harvest is in and farmers buy fertilizer for the next season to reduce the tax drag on their income.
If you want more detail on the seasonality of the sector pick up a copy of "Thackray's 2010 Investor Guide". As with all studies, seasonality is not a guarantee but a factor to be considered when assessing the risk and potential rewards of an investment.
The three year chart indicates a clear line of resistance at $8 that you identified. The stock did catch a bounce off the 200 day moving average in February and produced a nice trading profit from a $6.80 entry point to the $7.90 high.
The takeover activity in the fertilizer sector has been the results of the low prices for the commodity over the last two years and the anticipation of higher prices in 2010.
The six month chart provides a view of the most recent action in the stock. The resistance at $8.00 again a factor and the MACD starting to turn lower suggesting that the current selling phase has not abated.
Right now the best strategy for HF would be to keep it on your watch list for a break out of its trading range while keeping in mind the seasonal strength in the sector.
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