3. Mosaic (MOS)

3. Mosaic (MOS)

Sector: Basic Materials
Producer and distributor of concentrated phosphate and potash

The third stock on my list for 2013 is Mosaic. Mosaic is a fertilizer producer, one of the largest; this is probably my favorite pick for 2013. The reasons are both fundamental ( actual business environment) and technical ( price).

Fundamental- 2012 in the mid-western US saw possibly the worst drought in generations. Crops were destroyed, corn prices went through the roof as crop yields were barely existent. Farmers will be looking to take advantage of higher prices this year and will be looking to produce larger yields than normal to offset losses incurred last year. How does a farmer increase their crop production? Plant more and fertilize more.   Mosaic is not only positioned strongly in the US; Canpotex, who just completed a deal for 1,000,000 tonnes of potash with China's largest agricultural company Sinofert, is 1/3 owned my Mosaic. This deal will largely be in effect for the first half of 2013. Mosaic also just announced their 4th quarter earnings results and beat analyst's expectations, causing investors to buy up the stock.

Technical- The technical picture, in my opinion, looks quite promising.

First of all, this stock has been crushed over the past 5 years. After reaching an all-time high of $168 at its peak just before the financial crisis of 2008, MOS now trades at $58. It has been in a steady down trend since early 2011 and seems to be forming a massive reversal setup over the past year. The price pattern we are looking at is known as an Inverse Head and Shoulders Bottom. The name speaks for itself. There are 2 peaks (shoulders) on either side of a lower peak (Head). The Head and Shoulders pattern is one of the most reliable and strongest price patterns in technical analysis and this one is setting up magically! Now this pattern is not yet confirmed, price will have to move up and hold above the Key Resistance area of ~$62. However, if this comes to fruition, I am expecting a trade up to the $80 area; that would be a gain of roughly 30%! As long as price can stay above the right shoulder low of $48.25, I will be very interested in this setup.

This is a stock that I have been buying over the past month. What I really like to see is the larger reversal setup forming and smaller bullish (positive) patterns forming along the way. I have been trading this stock based on those smaller patterns and am anticipating the larger setup sometime this spring.

Price patterns are a very important part of following price action and are leading tells as to what a stock is setting up to do in the future. They are not perfect and often fail, but they tend to reflect the psychological aspect of investing and trading. Once we get through our top 10 stocks, I will take some time to cover some of the most common price patterns and what they represent.