Hi Lou: Have read your past comments on this stock. Would you please revisit Potash Corp. of Saskatchewan Inc.? Just wondering if now would be a good entry point, given recent competition scares from Russia. Thanks. I really enjoy your column. Susan
Thanks for the assignment and your kind words. I am glad that you have found value in the analysis. This will be the second time that I examine the case for Potash Corp. The last study was conducted on Oct. 10, 2012, on a request from Boris. The stock was trading at $40.80 and Boris was in at $55 putting him in a loss position. The research conducted on his behalf identified that the stock had been struggling with a downtrend since February, 2011, after falling from a high of $62. It was also mentioned that there were plenty of opportunities to trade the stock for profit through the downtrend. The shares were encountering resistance along the 50 and 200-day moving averages and were just holding support at $40. It was noted, however, that Potash Corp. had burned through support at higher levels. It was advised that Boris should sell the stock and take the tax loss. Retrospectively, that was the right call.
Another review of the case for Potash Corp. may prove of use as part of your due diligence.
The three-year chart depicts the panic selling that came in early August as news of a Russian supplier leaving a marketing group hit the markets. The dissolution of the cartel stoked worries that prices for potash would fall in the face of increased supply coming to market. Recently the spectre of possible lower grain prices has been circulating, which would be like throwing a boat anchor to a man struggling in the water. The sell signals generated by the RSI and the MACD in May would have warned those investors who were in the habit of studying the charts on a daily basis.
The six-month chart provides a close up of the MACD and RSI sell signal that surfaced in May when the stock was trading for close to $45. The momentum indicators also indicated that sellers were taking control of the market in mid July just ahead of the early August gap down. Currently, there is a death cross that has surfaced suggesting that we should expect continued selling pressure.
Your question about an entry point calls into question your objective. If you are looking for a trade, watch the MACD and the RSI and make sure to capture profits when available. The shares got aggressively oversold as a result of the Russian producer leaving the cartel and there has been some buying that has come into the market. If you decide to hunt this wounded animal make sure to protect the downside given there is a long established downtrend, resistance along the moving averages, a big gap down that has to be filled, and just the slightest ledge of support at these levels.
Make it a profitable day and happy capitalism!