Daily Chart Analysis: Potash Stock (NYSE: POT)

Over the last month, I have tried to stress the importance of looking at different charts and how different a daily chart can look compared to a weekly or monthly chart. There couldn’t be a better case than that of agricultural firm Potash (NYSE: POT).
The daily chart that goes back nine months shows a stock that has been on a slow steady climb higher, gaining a respectable 28% during the period. Yes the stock is overbought at this time and investors might be tempted to buy the stock on the next dip down if the slow stochastic reading reaches an oversold level.


Stepping back in time to look at the weekly chart, we see a totally different picture and it is one that might make you think twice about buying Potash stock. What we see on the weekly chart is that the stock is facing resistance from its 104-week moving average—a trendline that has held the stock in check on a couple of occasions since dropping below it in 2011.


We also see that the weekly stochastic readings are in overbought territory. The third thing that bothers me about Potash stock is the way the $36 level was acting as support in the first half of 2013, right before the stock gapped 23% lower on July 30. I have made mention of how former support levels tend to turn into resistance levels once a stock breaks below that level. When that level gets broken with a gap down, the probability of it acting as resistance becomes much stronger.
The sentiment indicators are the one thing that is working in the favor of POT breaking above the resistance. The short-interest ratio is at 4.5 currently and the put/call ratio is in the top third of the past year’s readings. The analyst ratings are particularly bearish with only eight “buy” ratings, 21 “hold” ratings and three “sell” ratings. Having 75% of the analyst rate a stock at a hold or worse is unusual and that could work in the stock’s favor.
The company’s fundamental performance hasn’t been very impressive over the past few years. The average EPS Growth (or contraction) over the last three years has been -13%. Over the past three quarters, the performance has been even worse with the average earnings growth being -40%. In addition, sales have declined an average of 3% per year over the last three years. Not exactly the type of performance on a stock you want to own long term.
Potash stock presents us with a mixture of bullish and bearish outlooks. The sentiment represents the best case for bulls, but the technical and fundamental pictures are both bearish in my eyes. I would not buy the stock at this time, but I would play a straddle with the options. The reason is that should the stock break above the resistance, the stock could really explode higher in the coming months and the negative sentiment toward the stock could be a big driver. On the other hand if the resistance holds and the company continues to disappoint with its earnings, the stock could easily fall back down to the $28 level. This should all play out in the next four or five months.

Triple your dividends with one stock – starting this month!

With so many investors grabbing up shares of blue chips, yield is getting hard to come by. In fact, the average yield of the Dow has sunk to 2.1%. But our group of investors isn’t worried. We’re collecting big monthly dividends… up to $550 every 30 days…  from a little-known investment that yields a whopping 12%! If you’d like to tap into this income stream, and earn up to triple the dividends of even the best blue chip, click here for our full report on this opportunity. 

To top