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POT - Potash - Still In An Up Trend? Should You Buy This Stock Now?
By Geoff Green | April 29, 2008
Just take a look at POT - Potash Corp - if you want an example of an up-trending stock. The question is - is this up-trend still intact or is market timing telling us to sell now?
Potash Corp - symbol POT has been a regular member of our best stock picks for some time now and no wonder, POT currently boasts a yearly growth rate of 30%. POTs growth rate slowed a little in 2006 to 18% and prior to 2006 varied between 20% to 36%. POTs EPS turned from negative to positive in early 2005 and has skyrocketed since then to an EPS of approximately $7.
Given the business that it’s in - fertilizers - it may continue to grow from here. But has POTs stock price and up-trend got a little ahead of itself?
Let’s take a look at the business itself:
Potash Corp, (POT) Potash Corporation of Saskatchewan, Inc. (PotashCorp) engages in the production and sale of fertilizers, and related industrial and feed products. The company manufactures and sells solid and liquid phosphate fertilizers; animal feed supplements; and industrial acid, which is used in food products and industrial processes. It produces potash from six mines in Saskatchewan and one mine in New Brunswick. PotashCorp also produces nitrogen fertilizers, as well as nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate, and nitric acid. It has nitrogen facilities in Georgia, Louisiana, Ohio, and Trinidad. The company sells its products to retailers, cooperatives, and distributors that provide storage and application services to farmers in North America. Potash Corp was founded in 1953 and is based in Saskatoon, Canada.
So how do you decide if an investment in POT is right for your portfolio. It really depends on your investing strategy. If you are more of a buy and hold investor then watching the weekly chart may work best for you. If you are a trader and look to take more short term profits then watching the daily chart is probably the best idea.
The daily chart is certainly showing some profit taking right now, but the up-trend still appears to be in place, at least for the time being.
Although both charts show some profit taking, let’s examine each chart and see how they can be used to your advantage.
Looking at the daily chart of POT, you can clearly see that the optimal time for traders to sell POT has passed a week ago. How would you have known to sell?
Clearly, stock prices cannot continue in a skyrocketing up-trend indefinitely. After almost a month of hugging the upper Bollinger band on the way up, astute investors would have figured some profit-taking was inevitable.
Investors didn’t have to be that astute to see the huge trading volume on 4/24/2008 on a down day to know that something was wrong. Even if that day was overlooked there were several more opportunities to sell and capture some profits from this up-trend.
So is this up-trend for this best stock pick over? Time will tell, but without much of a doubt price and volume action along with the indicators are pointing towards some more movement down to the closest support level.
However, because of the huge up-trend that POT was on, there isn’t much support until prices get down to about $165 to $170 - which just happens to be right round the 50 day moving average. I’ll think POT will find support at this level.
Whether the up-trend resumes after that or not remains to be seen.
Let’s take a look at the weekly chart and see what we can deduce about the up-trend from a longer time perspective.
On the weekly chart the top looks a little different. Instead of the huge volume of late April showing up as a reversal day, it shows up as little price progress.
This sort of action - huge volume with little price progress - is a clear sign that a top is being formed. It remains to be seen if this is an intermediate top that will be followed by a consolidation period and a resumption of the up-trend, or if this is the end of the up-trend for a longer period of time.
The weekly chart also shows the price support level for POT at about the same price as on the daily chart - at about $165 to $170.
So if you are interested in owning shares in this fine company, what should you be watching for?
Well both charts are showing a high potential for some price reversal down to the $165 to $170 level. Investors should wait until this price level demonstrates the proper amount of support before committing funds to this stock.
Once POT has created a foundation around this price level, it will likely leave clues about whether or not it will resume it’s uptrend. Of course the overall market environment will help POT make up it’s mind about what it will do after reaching the support level.
Will POT make it back up to be a leader on our weekly best stock picks list? Right now it is way down the list based on its technical performance. Time will tell if it makes it back on as a consistent leader.
But if POT isn’t on the best stock pick list, you can rest assured that another fine company that is in an up-trend will take its place.
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Topics: Bollinger bands, Selected Stocks, Stock Analysis, moving average, price, stock analysis lessons, support levels, volume |
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