Good day, Lou,
Enjoy your insights. What are your thoughts on potash, specifically Agrium, in the near future (six months)?
Your question is well timed given that fertilizer stocks enjoy a period of seasonal strength from August to December. It does appear that the party got started a bit early this year for Agrium Inc. . Let's have a look at the charts.
The three-year chart illustrates the characteristics of trend, support and resistance. The first is the support at $52 which you can trace back to late 2007. When the price of AGU broke its uptrend in March of 2010 when it met resistance at $75.00, the decline halted once it reached a level where investors had confidence that buyers would emerge. That is what makes the understanding of, trend, support and resistance so important when we look at a chart.
As Jordan Kotick, Head of Technical Strategy at Barclays in New York, taught me many years ago, if you can use a ruler, you can reduce risk and improve opportunities. So get a straight edge and get in the game!
The six-month chart tells the tale of the MACD generating a sell signal when AGU met resistance at $74.00 in March and a buy signal in late June when it hit $52.00. As mentioned earlier, it looks like AGU has gotten an early start on its period of seasonal strenght but that doesn't mean that the opportunity is lost.
In fact, it strongly suggests that if you are looking to catch a ride, you need to know when the plane, train, or bus is scheduled to leave and get to the terminal early in case of a change. As with all factors in the market, there are no guarantees that a pattern of seasonal strength will occur.
As I discussed with Brooke Thackray, author of Thackray's 2010 Investors Guide and an expert on seasonality, it's like quantum theory. When we look at electrons circling the nucleus of an atom, we are not sure where the electron is exactly, just the probability of where it could be.
The shares of AGU are doing what you would like them to do, and over the next six months you will have the opportunity to make a profit. From here, it looks like a run to $75.00 before you hit resistance.
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