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

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