Potash Corp.: Sitting on the Long-Term Trendline

I've been seeing a lot of people concerned about the action in the agriculture sector, namely fertilizer stocks. I just wanted to post and say that while yes, there is some concerning action in those stocks, the long-term trendline is still in tact. And, that's all I'm concerned about. We all know these companies are still firing on all cylinders, as evidenced by the blowout quarters they just reported. The market, though, likes to sell off anything remotely commodity related - that's just how it is. As Lawrence so effectively pointed out - until the long-term uptrend is broken, these stocks are still manageable.

click to enlarge

We are currently right around the long-term trendline. You can buy around $168/169 and then stop out around $165 if you want a tight stop or $159 if you want a less conservative stop. These fertilizer names are on the verge of a major technical breakdown. In addition, although we love their story fundamentally... you have to adhere to the price action we're seeing.

Disclosure: None

 

Comments

[MarketM:]

If you're so confident about the trend why don't YOU establish a position instead of telling others to do so?
You charting skills are weak, if you will be impartial and draw your lines correctly, you will see that the trend has been broken slightly.
A 2% & 5% stop on such a volatile stock is ridiculous.
Your post is a quick and easy way to lose money.

2008 Aug 10 03:11 PM

[David White:]

The big reason for the decline in commodities recently seems likely to have been the US dollar strengthening. The led to investor exiting their commodity futures hedges against the dollar. Today the EURO is up against the dollar. Not coincidentally POT has started to go up again. The strength of the US Dollar does appear to be the key issue in commodities prices these days. Also by now a lot of people have already exited their hedge (of the dollar) trades. This was creating a short term temporary spike downward in demand on most commodities. If the US dollar is now wavering, hedgers might try to re-enter. This would spike prices the other way. If the US dollar strength is still improving overall, enough hedgers may already be out of the market to allow commodity prices to rise. Demand is actually increasing for most commodities. Oil demand may be the one commodity demand that is most tied to economic performance, especially US economic performance. For the "food" commodities the demand should still be great. The temporary downward spike in demand may be nearly over if most of the hedgers are now out???? If so, this would allow the Ag stocks to begin their rise.

2008 Aug 12 10:05 AM

[Will Bauer:]

David,
I agree but would add that the recent $US rally *and* significant POT selling may well be simply a case of hedge fund deleveraging. It has long been the case that a good investment pairing is short USD + long commodities (oil, ag, gold). With the significant pressure in terms of increased margin limits et al., it is quite possible that the recent USD run-up is a case of them covering their shorts to lock in profits and reduce margin usage.
There is certainly *nothing* that has changed in terms of the fundamental macro-economic problems confronting the US dollar (of which there are so many I don't know where to start in enumerating them!)...so I would expect the USD to weaken over the next few weeks/months and commodities (including equities like POT) to begin to strength once again!
Once again, NOTHING has changed to make the US dollar (or US economy) healthy...this is just a temporary negative spike.


On Aug 12 10:05 AM David White wrote:

> The big reason for the decline in commodities recently seems likely
> to have been the US dollar strengthening. The led to investor exiting
> their commodity futures hedges against the dollar. Today the EURO
> is up against the dollar. Not coincidentally POT has started to go
> up again. The strength of the US Dollar does appear to be the key
> issue in commodities prices these days. Also by now a lot of people
> have already exited their hedge (of the dollar) trades. This was
> creating a short term temporary spike downward in demand on most
> commodities. If the US dollar is now wavering, hedgers might try
> to re-enter. This would spike prices the other way. If the US dollar
> strength is still improving overall, enough hedgers may already be
> out of the market to allow commodity prices to rise. Demand is actually
> increasing for most commodities. Oil demand may be the one commodity
> demand that is most tied to economic performance, especially US economic
> performance. For the "food" commodities the demand should still be
> great. The temporary downward spike in demand may be nearly over
> if most of the hedgers are now out???? If so, this would allow the
> Ag stocks to begin their rise.

2008 Aug 12 01:09 PM