By Mihir Gupta and Karan Pathak (University College London)
Stock Name: Compass Minerals International Inc.
Sector: Metals and Minings - Other Mined Minerals
Current Market Price: $57.60
Target: $58.50 - $60
Duration: 3 - 4 days
Compass Minerals International is a leading provider of essential minerals responsible for assisting in naturally created obstructions. These range all the way from salts for winter roadway safety to other forms for industrial and agricultural purposes.
The company has three major segments that are a) Salt, b) Plant Nutrition - North America and c) Plant Nutrition - South America.
Their Salt segment produces MgCl and markets salts for various industrial, road deicing and agricultural purposes.
The Plant Nutrition - North America segment includes fertilizers and micronutrients, especially with the ambit of sulfate of potash.
The Plant Nutrition - South America segment primarily operates out of businesses centred around agricultural productivity and chemical solutions in Brazil.
As per the latest financial statements published by the company, their Q2 Revenues for FY 2020-21 stood at $256.1 Million with an EPS of $0.04. Subsequently, their Revenues for Q1 - FY 2020-21 were recorded to be $413.9 Million with an EPS of $0.80.
Kevin S. Crutchfield serves as the President, Chief Executive Officer and Director of the Company, James Standen as the Chief Financial Officer, George J. Schuller as the Chief Operations Officer and Angela Y. Jones serves as the Chief People Officer.
Product Offerings Snapshot
Compass Minerals International produces salt, plant nutrients and magnesium chloride primarily in North America. The company also has storage solutions and all of their products have a variety of applications in industrial, agricultural, commercial and consumer markets.
Salt: Compass Minerals is the leading salt producer in North America and the UK. Their largest business produces highway deicing products such as rock salt. Their salt is also utilized for water care, animal nutrition and culinary salt.
Plant Nutrients: There are four major product lines that lie under the ambit of Plant Nutrients. Firstly, the ‘Proacqua’ line of products caters to water soluble plant nutrition solutions. Secondly, the products lying under the ‘Potassium+’ product line assist in providing a premium potassium source to help plants reach their full yield potential. Thirdly, ‘Wolftrax’ caters to micronutrient secondary nutrient fertilizers that are designed to be coated onto dry fertilizer blends. Lastly, ‘Rocket Seeds’ offer a portfolio of nutrient rich sources to assist young crops in withstanding harsh climatic conditions.
Magnesium Chloride: The harvestation of the companies MgCl is conducted in the Great Salt Lake in Utah. They’re the only producer of naturally occurring magnesium chloride. The product lines usually cater to additives of stand-alone deicers. It may also be used as a dedusting and stabilizing agent for gravel roads and an early stage plant nutrient for wheat crops.
Storage Solutions: The company’s ‘DeepStore’ product line of storage solutions helps personalize storage solutions as per client’s needs. Their project managers have experience in managing archive migrations and seeing the end-to-end delivery of the process. They also provide an underground storage solution which is free from vermin, flooding, and UV light.
Index: S&P 400 Midcap (1,817.27 as on 26th September 2020)
Support and Resistance Analysis
Graph 1: Support and Resistance analysis for S&P Midcap 400 (Investing.com as on 26/09/2020)
As on 25th September 2020, S&P Midcap 400 closed at 1817.27, after having dropped 24.96 points since the opening of the trading day. Ever since the COVID-19 crash, the index witnessed an extremely bullish run, thereby marking a healthy V-Shaped recovery. However, only until very recently (i.e. since 2nd - 3rd September 2020), has the index witnessed a trend reversal owing to the major correction that has come across the wider American indices due to the ‘technology sell-off’. As per our analysis, the immediate support for the index is at 1,780 and the immediate resistance is at 1,840 (as shown by the yellow rectangles in Graph 1).
Graph 2: Fibonacci Levels for S&P Midcap 400 (Investing.com as on 26/09/2020)
Moreover, based on historical analysis of the index, some of the other crucial levels in addition to the immediate support and resistance are 1,740 and 1,710 on the downside and 1,900 and 1,960 on the up-side respectively (as shown by the orange and blue rectangles respectively in Graph 1). The strength of these levels is further highlighted by the Fibonacci Levels that have been shown in Graph 2 and the fact that most of these levels are ‘round numbers’ in nature which tend to be psychologically strong. As it can be seen, the 1,900 - 1,905 and 1,740 - 1,750 levels have been particularly strong for the index, with 1,903 and 1,749 being the 0.786 and 0.618 retracement levels respectively.
Trend and Pattern Analysis
Graph 3: Trend Analysis for S&P Midcap 400 (Investing.com as on 26/09/2020)
As shown in Graph 3, the index was following an extremely distinct bullish trend line (as highlighted by the black line in Graph 3) until it was breached between 3rd - 5th September, 2020. Before this, the index had been forming higher-highs and higher-lows throughout the recovery rally. However, on 4th of September, 2020 this trend line breach was complemented with a break-down of the immediate support of the index, making the trend-reversal inevitable. In fact, ever since the index has broken its rising trendline and immediate support of the 1,900 - 1,905 levels, it has entered a parallel down-trend channel (as highlighted by the blue lines in Graph 3).
Graph 4: Pattern Analysis for S&P Midcap 400 (Investing.com as on 26/09/2020)
In terms of significant pattern formations that have been witnessed in the index lately, the breakdown on 5th of September, 2020 was a classic ‘Double-Top’ formation breakdown (as shown by the red lines in Graph 4). Also, as it can be seen in Graph 4, the index has been forming lower highs and lower lows-which is an extremely strong indication for a bearish-trend reversal and correction-undertaking in the market.
Graph 5: Bollinger Band Analysis for S&P Midcap 400 (Investing.com as on 26/09/2020)
However, although we are bearish on the market moving forward, we believe that the selling pressure in the market has been long extended and that in the coming week we can expect a pullback in form of some buying in the index in order to fill the gap (as shown by the yellow box in Graph 3). This aspect is further highlighted by our Bollinger Band, Although it is true that the candlesticks outside the lower bound of the band on 4th and 8th of September, have indicated an extremely strong bearish reversal - the price movement always tends to test the 20 MA. Resultantly, the price movement in Graph 5 is testament to the fact that it is way too extended away from the 20 MA because of which we are expecting some level of buying to come the index’s way in the very short term (i.e. 2-3 days).
Moving Average, DMI and RSI Analysis
Graph 6: 20-day and 5-day MA & DMI Analysis for S&P Midcap 400 (Investing.com as on 26/09/2020)
On 3rd September, 2020 the index observed a negative crossover between its 20-day and 5-day MA and has been trailing the down-trend ever since (i.e. it has been testing the 20-day MA and dropping back). What was particularly unique about this negative cross-over was that it coincided with a Directional Movement Index crossover, such that the -DI line (i.e. the red line) overtook the +DI line (i.e. the green line) . This is particularly insightful because whenever the -DI line is above the +DI line, it implies that there is a greater downward pressure on the price. In fact, even the current positioning of the two lines signify that there is downward pressure on the price. However, in line with the point previously brought up - we believe that the divergence is a bit extended at the moment which furthers the case for a correction to come and some buying to be witnessed.
Graph 7: RSI Analysis for S&P Midcap 400 (Investing.com as on 26/09/2020)
Finally, after having breached its long-time support of the 44.4 level on the Relative Strength Index on 4th September, 2020 - it did enter back the >44.4 level (as shown in Graph 7). However, given the bearish sentiment of the market, the index was not able to sustain this level and breached it again between the 17th and 18th September, 2020. Resultantly, moving forward we believe that this support-become-resistance level on the RSI is going to have a decisive impact on the future movement of the index. In our opinion, only once this level is broken convincingly, can we expect the trend reversal on the upside to return.
The ‘Tech Sell-off’
Graph 8: RSI Analysis for S&P Midcap 400 (Investing.com as on 26/09/2020)
As noted earlier, all indices across the American markets have been witnessing a significant amount of correction which has percolated down to stock markets worldwide. A predominant reason for this correction has been attributed to the bulk sell-off technology related stocks witnessed across the American Indices after having witnessed an unprecedented rally ever since the COVID-19 Crash.
In order, to put this into perspective, we have plotted the S&P Information Technology 400 and the S&P Information Technology 500 Index alongside the S&P Midcap 400. As it can be seen, post 3rd September, the direction as well as the nature of the movements across the indices towards the downside have been identical - highlighting their enhanced degree of interdependence. This may be a particularly important observation to keep in mind while moving forward as the global community rises from the pandemic and shifts its focus to other consumer based and ‘outside the home’ industries.
Technical Outlook for the Stock
Support and Resistance Analysis
Graph 9: Support and Resistance analysis for Compass Minerals International (Investing.com as on 27/09/2020)
As on 25th September 2020, Compass Minerals International’s share price closed at $57.60 after having gained 1.35% since the opening of the trading day. The share price for the stock has been trading within a tight sideways channel since late August. As per our analysis, the immediate resistance for the stock is at $58.62 and the immediate support is at $55.05 (as highlighted by the yellow rectangles in graph 9). Even the historical price-movement suggests that these were crucial levels of resistance and support at the start of the year just before the COVID-19 pandemic hit global stock markets and the stock witnessed its downfall. The strength of these levels is highlighted by the multiple testing they have witnessed as part of the periodic movement of the candlesticks.
Moreover, other than the immediate support and resistance levels, we believe that the $60.90 is a crucial level on the upside (as highlighted by the orange rectangle on the upside in Graph 9). In fact, we believe that if the share price were to break out convincingly from that level, intraday and swing traders can look at scalping a $4 profit per share as there is no distinct level as well as an unfilled gap on the upside. However, similar is the story on the downside. If the share were to break down from its immediate support, the next crucial level on the downside remains at $52.45 (ah highlighted by the orange rectangle on the downside in Graph 9) because there is an unfilled gap and no line of defence before that.
Graph 10: Fibonacci Levels for Compass Minerals International (Investing.com as on 27/09/2020)
The strength and importance of the aforementioned levels is further highlighted by the Fibonacci Levels that have been plotted on the basis of the up-trend move (as highlighted in Graph 10). As it can be seen, the immediate resistance and support levels are indeed the 0.236 and 0.5 retracement levels for the stock and on the downside, the $52.45 level is fairly close to the 0.786 retracement level of $52.37.
Resultantly, we believe that it is most ideal to buy on dip and sell on rise, unless and until either levels on the upside or downside are breached. Provided that the stock has witnessed buying with strong volumes and that we are expecting some buying to occur in the S&P Midcap 400 index as well, we believe that the stock can be held in order to scalp profits up till the $58.5 - $60 range.
Pattern and Trend Analysis
Graph 11: Trendline Analysis and Ascending Triangle Breakout for Compass Minerals International (Investing.com as on 27/09/2020)
As observed in Graph 11, the stock has been maintaining its parallel rising trendline ever since the share price bottomed out due to the pandemic on 3rd April 2020. Furthermore, the beauty of the rising parallel corridor lies in the fact that the price movement has maintained its higher high and higher low formation - indicating a bullish outlook for the stock unless breached.
In terms of significant patterns embedded with the price action of the stock, on 5th August 2020 the stock witnessed an ascending triangle break-out accompanied with strong volumes and a gap up (as shown in Graph 11). These set of factors combined our testimony to the strength of the break-out, potentially because of which the level of support that was created thereafter has been particularly strong and is yet to be broken.
Moving Average Analysis
Graph 12: 21-8 day EMA Analysis for Compass Minerals International (Investing.com as on 27/09/2020)
21 Day - 8 Day EMA Analysis
As per the recent movement of the 21-day and 8-day Exponential Moving Average lines, it may be concluded that the two lines are at some sort of an inflexion point and have not been able to establish a clear crossover on either side. A major reason for this may be constricted movement of the price action in a sideways channel. In fact, as it can be seen, although there was a negative crossover that occurred on 9th September 2020, it failed to materialise into a downtrend. Hence, we are of the opinion that at the moment short term crossovers for this stock should only be taken as viable indicators if they occur with strong volumes and are able to sustain themselves for an at least 3-4 days.
Graph 13: 200-50 day MA and Golden Crossover for Compass Minerals International (Investing.com as on 27/09/2020)
200 Day - 50 Day MA Analysis
Provided that the 200-day and 50-day Moving Average analysis is usually conducted to provide a medium to long term outlook for the stock, the same analysis for this stock seems to suggest a bullish outlook. Reason being that the stock very recently witnessed a Golden Crossover on the 21st August 2020 which is an extremely strong signal, as highlighted in our earlier reports as well.
Stochastic and RSI Analysis
Graph 14: Stochastic and RSI for Compass Minerals International (Investing.com as on 25/09/2020)
The first indicator in Graph 14 is the Relative Strength Index (RSI) of Compass Minerals International for a 14-day period. As per our analysis, we believe that the 42.67 level is a crucial support and 61.15 level is a crucial resistance on the RSI for the stock. As it can be noticed in the Graph, the movement of the RSI for the stock has been consolidating within this range. In fact, only very recently has it tested its support and bounced back, indicating some buying pressure to come the stock’s way in order to push it to its level of resistance.
The second indicator shown Graph 14 is the Stochastic Oscillator. The blue line is the stochastic line or the %K line and the red line 3-period MA of the %K line. As it can be seen in Graph 14, the stock had already entered the oversold zone because of which the level of buying that followed should have been expected. In fact, although both the lines have entered the normal zone, the 3-period MA of the %K line at the verge of the 20 level bound which may be taken as an indication for some more buying to be witnessed over the next couple of days.
News Event Box
The company is one of the 13 corporate legal departments to have earned the Mansfield Rule Certification Plus 2020 Designation from Diversity Lab.
The company announced in February that they would be a partner of the 2020 Phillip 66 Big 12 Men’s and Women’s Basketball Championships held in Kansas City.
Readers of Farm Journal’s Agriculture Professional magazine vote the company’s Rocket Seeds as 2019’s ‘New Product of the Year’.