ADD MONSANTO TO LIST OF AG STOCKS BENEFITING FROM RISING GRAINS -- SPRINT NEXTEL LEADS TELECOM ISHARES HIGHER -- PLUNGE IN TRUCKING STOCKS SHOWS THAT DOW THEORY IS ALIVE AND WELL

MOSAIC REACHES FOUR-MONTH HIGH... A recent message (July 5) showed that rising grain prices owing to a midwest drought were driving up the price of fertilzier stocks. One of the stocks featured was Mosaic which is today's biggest gainer in the materials sector. Chart 1 shows Mosaic (MOS) gapping 4% higher to reach the highest level in four months. Its relative strength ratio (below chart) has been rising since June when grain prices started surging. Other fertilizer stock have also done well since then. Another agriculatural stock benefiting from the rising grain trend is Monsanto.

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Chart 1

MONSANTO ALSO SURGES ... Monsanto produces seeds and other products used by farmers to plant and grow their crops. It too is benefiting from rising grain prices. Chart 2 shows Monsanto (MON) breaking through its first half highs to reach the highest level in 52 weeks. Its RS line has also been rising. In addition to fertilizer (produced by Mosaic), farmers also need seeds to plant more corn. Demand for those agricultural products naturally rises along with grain prices. That's because farmers will need to plan more corn during the next growing season to take advantage of those higher prices. Monsanto is also sensitive to the trend of corn prices. Chart 4 compares Monsanto to the price of corn (solid matter) over the last four years. There's a clear correlation between the two. The upturn in corn prices during the summer of 2010 marked a bottom in the price of Monsanto. The stock has risen with corn since then. So has its relative strength line (below chart).l

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Chart 2

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Chart 3

DROPS IN TRUCKERS SHOWS DOW THEORY ALIVE AND WELL ... I read a financial article over the last week to the effect that Dow Theory wasn't working when it came to trucking stocks. The article pointed out that in a weakening economy, the Dow Industrials and trucking stocks (transportation) should be weakening together. It then expressed the view that trucking earnings were expected to rise which would break the link between them and industrials. The only problem with that analysis is that Dow Theory is based on price trends, not earnings expectations. And today's market action shows the trucking stocks are falling pretty hard. Chart 4 shows the Dow Jones U.S. Trucking Index ($DJUSTK) tumbling more than 3% today and threatening its June low. That plunge has made the Dow Transport's the day's weakest index.

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Chart 4

JB HUNT AND LANDSTAR PLUNGE ... The two biggest losers in the Dow Transports are trucking stocks -- and they're being hit very hard. Chart 5 shows J.B. Hunt (JBHT) tumbling 7% on huge volume. Apparently, it's quarterly profit increase wasn't enough to prevent today's plunge. Chart 6 shows Landstar Systems (LSTR) falling 3% and slipping beneath its 200-day moving average. The collapse in trucking stocks seems to conform to the theme of a slowing economy which is what financial markets have been telling us all along.

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Chart 5

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Chart 6

SPRINT LEADS TELECOM ISHARES HIGHER... I recently included telecom into the group of defensive dividend-paying stocks that have been bucking the market's lower price trend. Chart 7 shows Telecom iShares (IYZ) reaching a new recovery high today. Its relative strength line (below chart) has been rising since April. One of the biggest weighted stocks in the IYZ is contributing to today's gain. Chart 8 shows Sprint Nextel (S) surging 5% today to the highest level in ten months. Its RS line turned up during May. The fact that money continues to rotate into defensive stock groups like staples, healthcare, utilities, and telecom shows the investors are very worried about the state of the economy. That's also why they're selling economically-sensitive trucking stocks.

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Chart 7

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Chart 8

DOW THEORY SUGGESTS WEAKNESS... Chart 9 compares the three Dow Averages since last summer. After rising together from October to March, they've diverged. Notice in particular the Utilities (black line) rising since April, while the Transports (blue line) and Industrials (red line) have fallen. Chart 10 shows shows the relative performance of those two weaker Averages versus the Utilities (zero line). It's clear that the Industrials and Transports have underperformed the Utilities since March. It also shows the Transports leading the Industrials lower. [The green line shows the truckers leading the transports lower]. That's what usually happens in a slowing economy and a weakening stock market. Apparently, the Dow Theory is alive and well.

Chart 9

Chart 10