Interesting Developments in Potash POT

Oct 7, 2008: 12:21 PM CST

Potash (POT) was a highly watched, profitable stock from 2007 to mid-2008.  However, as the commodity markets began falling sharply, so did shares of Potash, destroying profits and sending prices plunging from $240 to $80 in four months.  Let’s see these developments on the Weekly chart as well as potential support both from the weekly structure and a potentially completed Elliott Pattern.

Potash (POT) Weekly:

The strong and pervasive uptrend since late 2006 terminated in mid-2008, and price came down to test the rising 20 period EMA (a strategy which had been ultra-successful) and then failed at that level, setting up a “support trade” or “magnet trade” to test the rising 50 period EMA which succeeded… until price found resistance yet again at the (now) falling 20 period EMA (two tests).

After price broke beneath the 50 week EMA, it set-up yet another ‘magnet’ support trade to test the rising 200 week SMA – however unimaginable this was.

Price is now finding potential support (as expected) at these levels (roughly the $75 per share level) and we appear to be due for a counter-swing back up to a key Fibonacci retracement of the prior swing down.

The Daily Chart shows this recent plunge was part of a clean Elliott Wave structure.

Potash (POT) Daily:

First look at the larger 5-wave impulse and then note that Wave 3 sub-divided into a 5-Wave impulse move down itself.  Notice also that a positive momentum divergence formed as the sub-wave 5 terminated into new daily price lows (before the counter-wave 4 up commenced).

At the moment, we could be terminating Wave 5, which is the End of the Elliott Impulse and could be stepping into an A Wave Up correction (followed by a B wave down then a C wave up – I haven’t drawn these on the chart).

The A Wave up could take price to the $120 – $130 per share level before finding potential resistance and then coming back to a B Wave back down.

Notice that price made a new momentum low on the daily chart. which underscores the ferociousness of this downtrend and the violent recent downswing from $180 to $90 (roughly a 50% decline) in less than a month.

Potash also offers (at least) two quick investment lessons:

1.  Just because a stock is popular and is ‘going up’ doesn’t mean it can’t come down… HARD

2.  Don’t double-down and try to keep calling a bottom, thus eroding capital.

If you thought this stock would continue going up at any point, that was fine, but you could not have let the prior move or public opinion (or the TV) cloud your judgment – take your stop-loss and move on.  Don’t try to force your will on the market or a stock.

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4 Comments

4 Responses to “Interesting Developments in Potash POT”

  1. SilkySmooth Says:

    Keep up the good work Corey!

  2. J Says:

    Hi, Corey:
    Would you please let me know the setting you used in your chart (especially how did you get the shadow Bollinger band)? Thank you so much. It has been very educational following your blog.

  3. Corey Rosenbloom Says:

    Hey J,

    Thank you for the comment. I posted the settings I use on the post:

    http://blog.afraidtotrade.com/how-i-set-up-my-charts/

    For the Shadow Bollinger (I do so because I do not want too many lines cluttering the price, but I feel the BBs are very useful for assessing OB/OS and volatility contractions) it’s using the StockCharts.com defaults, but for STYLE, I select “AREA” and then under “OPACITY” I select “0.4” or perhaps “0.5” and I select the color to gray (can be any color listed).

    I hope that helps!

  4. J Says:

    Thank you so much, Corey.