MarkGillCPA

Adding to My Short Position in Potash

I agree that it's important to keep it simple with technical analysis, but I disagree with his conclusion. John Murphy, who has written numerous books on technical analysis also states that it's important to to use simple trendlines and moving averages. However, he also states that the longer a trendline, the more relevant it is. In this case, I don't believe your 5-week trendline is long enough to be relevant other than for short term traders.

On a weekly chart, the severe downtrend appears to be broken in December. On a daily chart you could draw a support line starting at the 47.47 low in December and the 63.65 low in March. Then you could draw a resistence line at 95, which goes back to November. The result would be an ascending triangle, a bullish pattern that covers the last 4 months.

Also, before buying any of the fertilizer producers, check out DBA, an ETF of ag crops. It appears to be putting in a head and shoulders bottom. At stockcharts.com you can overlay POT on the DBA chart and see that there is a tight correlation. Crop prices need to improve before farmers will use more fertilizer. If DBA breaks 27, POT will break 95 to the upside.

From a fundamental basis, a word of caution. POT likes to claim that farmers are not that sensitive to fertilizer prices because of the yield improvement. But that's not true. Farmers will pay up for fertilizer only when crop prices are high enough to cover their input costs. That's why I link POT to DBA.

Last year, when fertilizer prices were so high, some farmers here in the Texas Panhandle began using cattle manure as a substitute to save money. Not as effective as chemcal fertilizers (and comes with a different set of issues like weeds) but it will work.

Now that fertilizer prices are lower and crop prices appear to be putting in a bottom, there might be a nice upside opportunity in POT.