Is Fertilizer UnCoupling

• Posted by Greg Harmon
• on March 25th, 2013

In yet another example of the market heading higher despite previously correlated assets moving in the opposite direction, take a look at the fertilizer stocks. One I watch, CF Industries, $CF, is having a really rough time. From the chart below you can see that today triggered a Head and Shoulders top with a price objective lower to at least 156. This would coincide closely with a full retracement of the

move higher from May 2012 down to 153.40 and the current 3-box Reversal Point and Figure price objective of 144. A pretty good alignment for a short trade. But it becomes a very scary situation for market bulls when you look at the same chart cleared of all the moving averages, Fibonacci’s and trend lines, and comparing it to the S&P 500, $SPX. The chart below does that. The correlation to

the S&P 500 has been very tight until the beginning of February. Since then the S&P has continued higher while CF industries is trending lower. If they should recouple with the S&P falling then the 1400 level at the beginning of the year seems a reasonable retracement target. Of course the correlation could just be permanently broken. There is no need at this point to bet on it reverting. Wait for the price action to show you what it will do but be prepared.

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