Securities Research Services

Tuesday, February 19, 2008

A Chemical Romance

The chemical sector continues its interesting journey, all but ignoring bear market pressures that took down even the strongest of groups. Now, once again, these stocks are back at 52-week highs and knocking on the door of resistance like a DEA agent with a warrant in hand knocks on the door of a suspect.

Today we will take a look at some of the leading stocks in this sector, we'll look to see if there are any chinks in the armor of the massive uptrend they are enjoying and look at a couple of scenarios that might play out over coming weeks.

Starting with Celanese Corp (Ticker Symbol: CE), note that the stock has formed a strong base of support above its rising 10-day average. After a short trip below the 200-day average, the stock has recovered in V-bottom fashion and the 50-day and the 20-day are rounding back up again.

Major resistance hovers just above in the $42.00 area so the stock may stay hemmed in for a while, but the bullish outlook for this stock continues to be promising.

Next, we will take a look at Monsanto Co (Ticker Symbol: MON). MON broke its trend when the market plunged in January, but has since recovered strongly and is now testing the underside of the uptrend. It too may be hemmed in for a while in this area, but the trend for MON is such that it would be foolish to short hoping to catch the top here.

We would look for one of two scenarios to unravel here. If the market can power higher from current prices, look for MON to test and probably take out its 52-week highs. If, however, the market moves back to January lows for a retest, MON may tread water or pull back slightly for a period of time.

Finally, let's take a look at MOS. Today MOS is breaking out to a fresh 52-week high on volume. Unlike CE and MON, MOS never breached its trend on a closing basis. Undoubtedly this is a strong stock as can be seen from the weekly view below.

There is one chink in the armor that we would point out. Money stream (the pink line in the chart below) has diverged bearishly against price. This isn't a deal breaker and we've seen a divergence like this heal itself. It does tell us that the stock has a bit of a cough and if it doesn't take care a cough could potentially turn into something worse like a case of pneumonia. There is no reason to sell here and no reason to panic. Just be aware that signs of weakness are starting to show up. As long as more symptoms don't appear it should be ok.

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