And yet another day of moving higher! Will this market rally ever end? Yes. But, thanks to this market’s insistent rally, some stocks have made their way up to old levels of potential resistance. Since a market pullback should be close, grabbing a short position could prove profitable in the short-term. A stock that may be hitting an area of strong resistance would be that of Potash Corp. of Saskatchewan Inc.
Potash Corporation of Saskatchewan Inc. is an integrated fertilizer and related industrial and feed products company. Potash owns and operates five potash mines in Saskatchewan and one in New Brunswick. It also holds mineral rights to the Esterhazy mine where potash is produced under a mining and processing agreement with a third party. Its phosphate operations include the manufacture and sale of solid and liquid phosphate fertilizers; animal feed supplements and industrial acid, which is used in food products and industrial processes. It has a phosphate mine and two mineral processing plant complexes in northern Florida and six phosphates feed plants in the United States. Its nitrogen operations involve the production of nitrogen fertilizers and nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate and nitric acid.
Please take a look at the 1-year chart of POT (Potash Corp. of Saskatchewan Inc.) below with my added notations:
As you can see from the chart above, POT has a very important price level at $50. After struggling with the $50 resistance (red) late last year, POT broke above that level and continued to bounce on it as support (green) for the next 8 months. In September, POT broke that $50 support, fell lower as one would expect, and then rallied back up to the $50 level only to find resistance there yet again (red). Just yesterday the stock approached the $50 resistance.
The Tale of the Tape: POT is approaching it’s $50 resistance again, and with a market pullback due, a trader might want to enter a short position on POT at the $50 level with a stop placed above that level. For those traders waiting for an opportunity to enter long positions, POT also has a potential level of support at $45 (blue) if the stock should pull back down to that level.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT