Potash Breaks to Downside – Targets Established

Aug 4, 2008: 12:35 PM CST

High-flying stock Potash (POT) appears to be in a larger-scale distribution pattern on the daily chart and just potentially broke a descending triangle today.  Let’s look at this chart for potential price targets should these patterns be valid.

Potash Daily:

Based on quick analysis, we have lengthy and persistent negative momentum divergences since April, and momentum is accelerating to the downside now.

The $190 per share level provided solid support in the past, and now that level has been broken to the downside, and there is a descending trendline ahead, which completes a possible ‘descending triangle’ distribution chart pattern.

Classical technical analysis uses price projections from the height of the triangle, which is at $240 down to $190, which would mean a possible downside target would be projected down $50 from the triangle break at $190 to be placed near $140 per share (blue arrow).

I have an initial target near $165 per share, which corresponds with a test of support at the 200 day moving average (currently at $165.69 per share) and the weekly 50 period moving average at $161.89, which is flattening out).

On to the weekly chart.

Potash Weekly:

This chart cleanly shows a ‘non-confirmation’ by volume, as higher prices were met with less enthusiasm and lower volume readings (also there was a negative momentum divergence, which is not shown).  The weekly ‘gravestone doji’ in June at the top of the Bollinger Bands – when combined with a negative divergence from momentum and volume – served as an excellent, high-probability short-sell (or exit for long positions).

With the 20 week EMA violated, a potential target of $160 per share is established as sort of a ‘magnet trade’ or possible ‘impending test’ of the ‘next line of support’ via the 50 week EMA.

These are ‘quick’ targets and you need to apply your own analysis to see if there are other indicators or price points (such as Fibonacci) that may lead further insight to you.  It will be interesting to see if once unstoppable stock Potash does indeed form a larger corrective or reversal pattern, and what that might mean for the broader market.

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