Commodity-related names had a tough go in the last half of 2015. The beginning of the year didn't end the struggles, but the last few weeks have shown life for a few names. It's possible the overall market rally is contributing to a rising tide lifts all boats scenario, but even if that's the case, one commodity related name, CF Industries (CF), appears to have another 12-15% potential upside here over the next three months.
While not everything is perfect, there is a lot to like on the weekly chart of CF. The stock has several long, downside tails from the beginning of the year. It would appear as if there is strong support and seller exhaustion under the $29 area. This does give us a clear area to stop or hedge a position.
Over the past week, the trend has crossed bullish for the first time in almost one year as shown by the MACD. In conjunction, the On Balance Volume (OBV) has pushed above the 21-week simple moving average (SMA) as well. The stock has performed best when these two indicators aligned. Lastly, price is pushing higher and doesn't face resistance until the $40 area. A push over $40 sets us up for $45, but I would maintain a focus on $40 for now. If buying the stock, the $40 strike would make a nice target for a covered call sale.
I would like to see the Relative Strength Index (RSI) push over 50. There is some concern it will rise to 50 and then get rejected here. A push over 50 should see continued uptrend. Also, the correlation with natural gas is currently high, which is not something we've seen since a short time in 2014. While the correlation has not necessarily led to a bullish move in the stock, the current and continued weakness in natural gas could continue to prove troublesome.
Overall, the risk versus reward looks attractive here, with a clear outline of the downside and targeted upside.