Potash Corporation of Saskatchewan pulling back from an overbought situation

Jan 24th, 2014 – Comment

Given the price competition in the sector I would not be expecting a return to the 2011 highs near $55.00 until the fight for market share has exhausted all the players.


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Hey Lou,

I enjoy listening to you on AM640!
I would like to know what your thoughts are on Potash corp on the TSX.

I took a position right after the collapse @ $29.98 I’m thinking this is the time to get out?

Thank you for your time and keep up the great work.

Jim

 

Hey Jim,

 

Thanks for the assignment and your support! Congratulations as well on your trade!

This will be the third time that I investigate the investment opportunities and risks associated with Potash Corporation of Saskatchewan (POT TSX). The last time an analysis was conducted was on August 12, 2013 when the shares were trading for $30.85. Susan wanted to know if the shares offered a good entry point. The research undertaken on her behalf indicated that there was an aggressive sell off following the announcement that Russia had decided to leave a long established potash selling group and chase the market on its own. The threat of increased supplies and lower prices hit all producers in the sector.

The result of the analysis was that POT was offering a trade from a deeply oversold situation. As things developed that’s exactly what happened. Buyers took control of the market and have raised the stock off the panic lows from last August.

An update will help identify if now is a good time to bail.

 

POT

The three-year chart is still dominated by a long term downtrend. There has been some recovery from the panic lows of August 2013 but as we moved through January of 2014 the shares got overbought and started to pullback. What seems to be developing is a retest of support along the 200-day moving average.

 

 

 

 

 

 

 

POT2

The six-month chart provides a close-up of the overbought situation that developed in mid January and the selling that ensued. The MACD and the RSI are both indicating that we should expect more downward pressure in the near term. When it comes to your sell decision ask yourself what got you into the stock in the first place?

If it was to trade for profit then you have met your objective. If it was to buy a world class nutrient company that offered you an attractive dividend then you have to take another look at the case.

Given the price competition in the sector I would not be expecting a return to the 2011 highs near $55.00 until the fight for market share has exhausted all the players.

Make it a profitable day and happy capitalism!

 

 

 

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