Potash Corp. is no buy and hold stock

Hi Lou,

I have 1000 shares of Potash Corp. which I bought at $55.00 CAD. What do you think, should I keep it or to sell it ?

Any feedback appreciated.

Thanks,

Boris

Hey Boris,

Thanks for the assignment.

Potash Corporation of Saskatchewan Inc. has been selling off since February of 2011 when it hit a high near $62.50. The shares haven't traded near your purchase price of $55.00 for close to a year, which explains your concerns. There are times when the narrative information makes it hard to determine how best to proceed. Technical analysts on the other hand are of the belief that in the price there is much knowledge. Price is seen as the perfect proxy for all the information currently available concerning the stock with particular focus on trend, support, and resistance.

A review of the charts will better inform your decisions regarding the investment.

The three-year chart indicates that the shares have been struggling with an established downtrend and that every attempt to move higher has met with resistance along the 50– and 200-day moving averages. There does seem to be some support at $40.00 but keep in mind that support levels at $55.00, $50.00, $47.50, $45.00, and $42.00 have all been breached as selling pressure overwhelmed the stock.

The six-month chart indicates that Potash has provided opportunities to trade for profit but buy and hold has not proven a successful strategy. The MACD and RSI signalled a buy on June 18, 2012 at $39.00 and a sell on July 9, 2012 at $46.00 generating a 17.9 per cent gain in three weeks. The next buy signal from the momentum indicators surfaced in late August at $40.00 followed by a sell in early October at $43.50 for a 8.75 per cent appreciation. Currently there are no suggestions that the shares are about to reverse the downtrend.

At this point you should be considering taking a tax loss on your position and if you really like the Potash story continue to follow the stock and look for an entry point on an uptrend.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it to lschizas@globeandmail.com.