A Look at the Recent Fall in Potash POT Dec 20

Dec 20, 2009: 7:23 PM CST

Potash (POT) is a stock I like to follow, mainly because it received so much attention as it rallied non-stop (almost) from 2006 at $30 per share to the mid-October 2008 peak of $240.  The stock is well-beneath these lows now, but it looked like the stock was coming back to life.

The recent downswing last Thursday and Friday brought that into question.  Let’s take a look at Potash’s weekly and daily chart and note key levels to watch going forward.

Starting with the October lows, we have a 5-wave mini-fractal price move that ended at the $122.50 level on a negative momentum divergence into the December highs.  That serves as an important educational example of the ‘fractal wave with divergence’ set-up.

As you’ll soon see from the weekly chart, the $120.00 per share level was also the 38.2% Fibonacci retracement of the ‘bear market’ fall from the 2008 lofty highs above $240.  This also serves as a lesson in how long-term Fibonacci retracement levels can affect price today – and why traders should at least keep these levels as references to watch.

The key level to watch to determine if this is just a simple pullback or the start of something larger is the $104.00 level.  The $104 price reflects the 50% Fibonacci retracement (as shown) along with the prior price swing high from mid-October 2009.

A break of this level would clue us in that lower prices are favored which would challenge $100.00 at a minimum.

There is, however, confluence support from the convergence of the 20 and 50 week EMAs at the $101/$102 level (see weekly chart below).


On the weekly frame, we see the large-scale Fibonacci Retracement of the “Bear Market” plunge rests at the $120.79 price level.  Price found resistance also at this level in late May and has failed to overcome it on the recent price swing high in December.

On both cases – so far – price has fallen sharply from this overhead resistance level.  This marks a classic “Double Top” pattern at the $120.00 level.

Again, watch the convergence (crossing-over) of the 20 and 50 week EMAs at the $100 level for further clues.

Notice also how solidly the 200 week SMA has held price as support starting in late March 2009 going forward – that’s eerie.  It currently resides at the $90 per share level.

Potash gives us a few good lessons in using Fibonacci as support/resistance, as well as moving averages as targets or support/resistance.

Watch these key levels going forward for clues as to what targets to play for or monitor next.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

5 Comments

5 Responses to “A Look at the Recent Fall in Potash POT Dec 20”

  1. Rofs Says:

    Very informative. Thank you for sharing your thoughts.

  2. twc2009 Says:

    Great analysis!

    If I may add, another important indicator to watch is the RSI.

    The weekly RSI at Friday's close was 52.92, pointing down, and close to the RSI 50 threshold. IF the RSI crosses below 50, expect a few points down.

    On the other hand, take a look at another indicator, the ULT RSI (7,14,28 setting). The weekly ULT RSI closed at 47.73, and pointing down. However, IF the ULT RSI crosses above 50, expect a few points up.

    One way or the other, expect some volatility in POT this coming week.

    Regards,
    TWC

  3. Bob Says:

    Potash (POT) is a fertilizer mining company producing a core commodity used by agriculture and is closely tied to oil (petroleum based fertilizers) and the USD. Of late, POT price action has moved inverse to the USD, as have most other commodities. However, Oil has recent bounced and price there is running counter to the trend (at the moment this seems odd). As a result of Oils strength, POT should be getting some degree of support.

    Watch the USD and Oil closely this week to confirm POT price directionality.

    Q's? Is Oil signaling a reversal of the USD and POT? Will Oil reverse and confirm a greater USD rally yet to come and lower POT prices? Hmmm.

  4. cbcafe Says:

    Wasn't POT rumoured a couple weeks back about to be bought out ? maybe the combo of the slowing commodoties markets and delay in something happening is what killed the price. No doubt it was definitley overbought. Looks like an entry point soon as the bottom looks close at hand.

  5. cbcafe Says:

    Wasn't POT rumoured a couple weeks back about to be bought out ? maybe the combo of the slowing commodoties markets and delay in something happening is what killed the price. No doubt it was definitley overbought. Looks like an entry point soon as the bottom looks close at hand.