Energy, Ag's Surge Might Be Waning

However, energy stocks should fall at a slower rate than other equities if the broad market heads back to the 2008 lows. The cushion of higher oil prices won't disappear just because stiff headwinds are battering other types of stocks. So these issues should retain their major status in investment portfolios, while market-timers look to protect profits.

Agriculture

Agricultural stocks have the same background support as the energy complex, with long-term demand growing and futures markets getting bid up by speculators. They're also insulated from recessionary pressures because folks have to eat despite adverse economic conditions. But I don't expect these stocks to be safe havens if the broad indices take another dive.

I've been suspicious about the agriculture rally throughout 2008 for one ambiguous reason -- stocks that outperform in one year shouldn't become instant market leaders in the following year. Ag stocks broke this quasi-rule by running higher in 2007 and then finding new buyers as soon as the calendar flipped into January.

Contrast this price action with tech stocks that led the market into year's end and then collapsed in January. Admittedly, my vague discomfort about agriculture isn't a good reason to avoid buying these stocks. But I still have legitimate concerns about the rally's power to hold together through the second quarter.

Mosaic

Click here for larger image.

Source: eSignal

My thoughts about the group are summed up on the Mosaic (MOS Quote - Cramer on MOS - Stock Picks) chart. The stock is currently trading near an all-time high after breaking above resistance at $118. So far, so good, right? Then add in solid accumulation noted in the green volume spikes that accompanied the recent breakout.

Now comes the problem.

Despite all the good vibes, this stock is trading just 15 points above the high posted back on Jan. 14. In the meantime, first-quarter price action shows 39- and 30-point downswings between the dramatic rally runs. This translates into an abysmal price rate of change (ROC) and a wedge pattern that makes life difficult for Mosaic shareholders.

The downside doesn't sound too bad when looking at the chart and seeing the price bars trading up at a new high. However, the weak ROC exposes an adverse reward-to-risk profile that predicts it will be easier to lose money with this stock in the second quarter than to make it. The issue becomes clearer when looking at other sector leaders.

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