The Potash POT Plunge of June 17

Jun 18, 2009: 12:12 AM CST

Potash (POT) fell 11% on June 17th, slicing through daily support and inflecting down off the 38.2% weekly Fibonacci retracement.  Let’s see all this up-close and learn a few lessons from this price movement.

Potash (POT) Weekly:

Without going into too much detail, focus on the closing high and low of the recent down-move and note that price was able to retrace to the 38.2% Fibonacci retracement (it makes no difference in this case if you truncate price spikes or not – using the spikes also produces the same 38.2% retracement).

Price hit this level at $121.70 and immediately inflected downwards, slicing weekly EMA support and breaking beneath the all-important psychological level of $100 per share.

If price continues lower, possible support would come in about the $80 level, which would reflect a prior ‘value area’ (price congestion) and the rising 200 week SMA.

Podash (POT) Daily:

On the daily chart, we also see a negative momentum divergence along with a complete five-wave Elliott fractal move up into the $120 resistance.  Both were early warning signs that ‘something is amiss’ particularly when you add in the knowledge of the weekly 38.2% Fibonacci retracement.

Notice how price spiked up to this level above $120, formed a upper shadow/reversal candle, and then made one last dying gasp complete with three dojis (a tri-star doji pattern – three dojis in a row – is particularly bearish).

Today, we had a large volume spike and new momentum low not seen since 2008 – this is a sign that odds could (probably) favor lower prices yet to come.

Watch the $90 level for a possible retracement up but if momentum leads price, we will break this area eventually as well.

Lesson learned:  An observable five-wave advance that forms a negative momentum divergence into the higher timeframe 38.2% Fibonacci retracement often results in a signifcant price reversal – or at least proves too much for optimistic bulls to overcome.

Corey Rosenbloom, CMT
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