The Potash Plunge – Targets Achieved

Aug 11, 2008: 12:47 PM CST

Potash Corp (POT) is in the midst of a downside price plunge, which was in part forecast by the breaking of moving average support and a subsequent target of a downside test of the 200 day moving average.  At current, Potash has tested and failed to hold the critical support line.  What does this mean?

On August 4th, I pointed out in my post “Potash Breaks to the Downside – Targets Established” that odds were quite high that we would at least test the $170 per share level on the daily chart (which was the target of the descending triangle) and just above the 200 day moving average.  Also, I set a target of $160 based on the weekly chart (via the rising 50 day moving average).  We have achieved both of those targets and beyond.  Let’s look at how it happened and what could be in store.

Potash Daily:

When a stock in a solid uptrend finally violates its 20 day moving average, the next target is the 50 day average.  If this line is violated, and price then finds resistance at this level, the next logical play is to the downside with a test of the 200 day average.  This scenario played out in textbook fashion in the stock, and we even got a price bounce as price tested the 200 day average (buyers may have found value there).

Sellers met the buyers at this critical technical test, and now sellers have convincingly pushed price through all major areas of support on the daily chart, and we can officially confirm a downtrend on Potash’s daily chart.

Before you run out and get short Potash now, something curious is happening on the weekly chart….

Potash Weekly:

Even though the daily chart is quite bearish, we see the potential for significant support via the rising (now flat) 50 week EMA at $160 per share.  Long-term bulls (buyers) could find value at this area, and could try to pick up a large quantity of shares here, so bears should be careful, however if sellers manage to ‘maul’ the buyers beneath $160 per share convincingly this week, all bets are off for this once amazing and wonderful oasis to the bulls.

This case is an interesting and clear example of how trends take time to reverse, and often give plenty of warning (like a large barge changing course slowly) of the potential new direction – complete with targets and technical ‘tests’ to achieve.

Annotate Potash your own way and learn valuable lessons from this popular stock that is now perhaps out of favor with many who arrived to the ‘party’ late.

4 Comments

4 Responses to “The Potash Plunge – Targets Achieved”

  1. Dominick Says:

    Hello Corey, just recently discovered your site and I think it is fantastic. My question is can you advise us of the indicators you use in your studies. Ex. sma,ema 20,50 macd and the parameters, rse, and parameters etc. It would help me with trading and following your analysis. Also I would like to try them out on my ameritrade charts. Thanks, keep up the good work you are an inspiration.

  2. Corey Rosenbloom Says:

    Thanks Dominick!

    I use the 20 and 50 period EMA, and the 200 period SMA.

    The MACD is the “3/10” Oscillator, which uses inputs on StockCharts.com of 3, 10, 16 (in that order) for the MACD.

    The Bollinger Bands (faded) are standard 20 period.

    Thanks for the comment!

  3. j.b. Says:

    I wish to add my “thank you” for your generous analysis that I always find so amazing!

  4. PW Says:

    Hey Cory I was watching this stock also. I caught some of the movement on the way up.

    I just found your blog and considering the market we are in now, your title is right on. I’ve met a few people just learning how to trade in this market and their frequent loses are making them “afraid to trade”. My account size is getting smaller also, so maybe I should join them 🙂