Potash POT Past Arc and Current Fibonacci Resistance
Potash (POT) was a major “go-go” stock of 2007 and part of 2008 as it helped investors ride up the commodity market ‘boom,’ but the crash was severe in the latter part of 2008, erasing almost all of the prior gains.
We’ve rallied sharply in 2009, but as you’ll see from the chart, the recent 70% rally from the late 2008 lows into the June 2009 highs was only able to reach the 38.2% Fibonacci retracement price of the entire down-move, which provided major resistance there. Let’s take a look at both of these examples.
First, I wanted to show the ‘arc’ beginning in late 2006 that traversed upwards into a climax at the $240 level when the arc turned vertical – such price advances are unsustainable, and a crash often follows such a steep and impressive arc formation.
It just so happens that this arc formed a nice weekly doji (or shooting star) candle at the highs before ‘falling off a cliff’ to collapse from $240 to $50 in sudden fashion. This is a lesson for beginners on the principle “what goes up, must come down.”
More pertinent to today’s action, the rally upwards off the $50 lows managed to retrace only 38.2% of the down-move from $240. Fibonacci levels are expected to provide chart support and resistance when tested, as this example shows.
Price is now in a precarious position, having failed to overcome the key resistance at the 38.2% level ($122 per share) and is now beneath both the 20 and 50 week EMAs, which are in a bearish orientation.
A bearish ‘shooting star’ candle formed last week at the $100 “psychological” and EMA resistance level, which is likely (almost certain) to hold should the broader stock market continue to fall from current levels from confluence resistance.
Potash teaches us a bit about “go-go” stocks, parabolic arcs, and Fibonacci retracements. See what else you can learn from this powerful stock’s chart.
For “Trade Triangle” signals on this and any stock you’re analyzing, Market Club now provides free “Quick Trend Analysis” for many of your favorite stocks, whether you’re a member or not.
Corey Rosenbloom, CMT
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what a timely post Corey. Am I wrong- my gut feel is that the sharpness of today's bank selloff kind of puts the lie to what's been going on lately and at a minimum teaches some people to sell next time (especially if you were in FAS, which i'm sure is what drove it). How does this pan out? and if its going somewhere different than CNBS said it would…
Corey,
Off topic, but I wanted to thank you for your posts on the “Three Push Pattern”. I too am an LBR disciple, trading only the “Grail” pattern, which equates to your “Impulse Trade”.
I trade currencies only, and have been looking for a reversal pattern to add to my arsenal. “Three Push” fits the bill perfectly. I used it to great effect today on the aud/jpy and usd/jpy 5 min.
I'm so pleased now to have a setup to trade with the trend, and for trend reversals.
All the best with your trading, and thanks again for the education.
Dom.
Thankyou very much for taking the time to educate me
Thank you Dom!
The Three Push is one of my favorites for sure – it refers to three final bursts or impulses that, when accompanied with a negative momentum divergence, gives us a low-risk (tight stop), high probability (the set-up leads to a reversal more than 50% of the time) set-up.
You're right on when you mention sorting out pro-trend and anti-trend strategies and adding specific set-ups to your arsenal.
All the best to you as well!
We'll certainly see sooner or later, but it appears that Potash has some work to do to continue going higher, and the larger structure shows the intense damage done to investors.
It's so tricky to interpret current action – it's so overbought to get long, but then again any time it looks like we're finally going to have a sell-off, an upsurge occurs, so you can't really get short without a confirmed signal. It's tricky for both bulls and bears. Hopefully some clarity will ensue soon.
I think the two setups compliment each other well. The three push acts as a filter in determining when to employ the “impulse” trade, and when to take profit and fade.
Thanks again.
Dom .
Despite what I said, I bought the dip in banks…glad I did. If even i'm doing it, it's hard to avoid the conclusion that we're going to end up with a true arc in the overall market – not as big as last year but a lot bigger than what we have now.
Time to join the crowd and be long financials with some type of downside protection like shorting gold and/or materials- which shouldn't do as well as the dollar strengthens on the back of Bank of America's stock bubble. Can't go against the system- have to use the system against itself. short FAZ, short UYM, short GLD. The crazy thing is you usually get plenty of time to sell at the top… lets just accept the greater fool theory for what it is and get on with it.
Just for consideration… here are the 2nd Quarter 09 earnings from the Potash corporate website. Not very strong numbers. I'd also point out other companies in the sector, like MOS, IPI, AGU, also experienced very weak demand. Not exactly the kind of numbers that should drive a price rally.
Q2 2009 Selected Financial Results (millions, except per share data and percentages)
Three Q2 2008 Q1 2009
Months Percent Percent
Ending Change Change
June 30, 2009
Sales $ 856.0 -67.3% -7.2%
Gross margin by segment:
Potash $ 106.2 -88.0% -36.3%
Phosphate $ 20.5 -94.0% 133.0%
Nitrogen $ 43.9 -79.1% -19.0%
Total gross margin $ 170.6 -88.1% -25.7%
Net income $ 187.1 -79.3% -39.3%
Net income per diluted share $ 0.62 -78.0% -39.2%
EBITDA 1 $ 355.9 -74.2% 21.7%
Additions to property, plant and equipment $ 399.6 68.0% 9.2%
Cash flow prior to working capital changes $ 304.7 -71.1% 66.6%
Cash provided by operating activities $ (63.7) -107.1% -164.5%
June 30, 2009 Financial Position
(millions, except per share data and percentages)
June 30, 2009 Percent Change
vs Dec 31, 2008
Total assets $ 11,264.5 9.9%
Total equity $ 5,498.9 19.8%
Total debt $ 3,817.8 24.6%
Just for consideration… here are the 2nd Quarter 09 earnings from the Potash corporate website (http://www.potashcorp.com). Not very strong numbers. I'd also point out other companies in the sector, like MOS, IPI, AGU, also experienced very weak demand. Not exactly the kind of numbers that should drive a price rally.
Q2 2009 Selected Financial Results (millions, except per share data and percentages)
Three Months Ending June 30, 2009 Percent Change vs Q2 2008 Percent Change vs Q1 2009
Sales $ 856.0 -67.3% -7.2%
Gross margin by segment:
Potash $ 106.2 -88.0% -36.3%
Phosphate $ 20.5 -94.0% 133.0%
Nitrogen $ 43.9 -79.1% -19.0%
Total gross margin $ 170.6 -88.1% -25.7%
Net income $ 187.1 -79.3% -39.3%
Net income per diluted share $ 0.62 -78.0% -39.2%
EBITDA 1 $ 355.9 -74.2% 21.7%
Additions to property, plant and equipment $ 399.6 68.0% 9.2%
Cash flow prior to working capital changes $ 304.7 -71.1% 66.6%
Cash provided by operating activities $ (63.7) -107.1% -164.5%
June 30, 2009 Financial Position
(millions, except per share data and percentages)
June 30, 2009 Percent Change
vs Dec 31, 2008
Total assets $ 11,264.5 9.9%
Total equity $ 5,498.9 19.8%
Total debt $ 3,817.8 24.6%