Potash (POT) is a stock I like to follow, mainly because it received so much attention as it rallied non-stop (almost) from 2006 at $30 per share to the mid-October 2008 peak of $240. The stock is well beneath these lows now, but it looked like the stock was coming back to life.
The recent downswing last Thursday and Friday brought that into question. Let’s take a look at Potash’s weekly and daily chart and note key levels to watch going forward.
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Starting with the October lows, we have a five-wave mini-fractal price move that ended at the $122.50 level on a negative momentum divergence into the December highs. That serves as an important educational example of the fractal wave with divergence set-up.
As you’ll soon see from the weekly chart, the $120.00 per share level was also the 38.2% Fibonacci retracement of the bear market fall from the 2008 lofty highs above $240. This also serves as a lesson in how long-term Fibonacci retracement levels can affect price today, and why traders should at least keep these levels as references to watch.
The key level to watch to determine if this is just a simple pullback or the start of something larger is the $104.00 level. The $104 price reflects the 50% Fibonacci retracement (as shown) along with the prior price swing high from mid-October 2009.
A break of this level would clue us in that lower prices are favored, which would challenge $100.00 at a minimum.
There is, however, confluence support from the convergence of the 20- and 50-week EMAs at the $101/$102 level (see weekly chart below).
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On the weekly frame, we see the large-scale Fibonacci retracement of the bear market plunge rests at the $120.79 price level. Price found resistance also at this level in late May and has failed to overcome it on the recent price swing high in December.
In both cases—so far—price has fallen sharply from this overhead resistance level. This marks a classic double top pattern at the $120.00 level.
Again, watch the convergence (crossing over) of the 20- and 50-week EMAs at the $100 level for further clues.
Notice also how solidly the 200-week SMA has held price as support starting in late March 2009 going forward—that’s eerie. It currently resides at the $90 per share level.
Potash gives us a few good lessons in using Fibonacci as support/resistance, as well as moving averages as targets or support/resistance.
Watch these key levels going forward for clues as to what targets to play for or monitor next.
By Corey Rosenbloom of AfraidToTrade.com
