by Tyler Craig | January 10, 2014 9:01 am
Potash (POT) has been dead money since its dramatic descent in late July last year. While there have been numerous attempts to revive this once high-flying stock, all have failed. And yet, with the turn of the new year, POT stock is attempting to turn a corner.
While it remains to be seen if the bulls can finally wrest back control, things look promising.
A brief glance at POT’s chart reveals that Potash stock has developed a long basing pattern taking on the form of an ascending triangle. Prior to this week, each rally attempt failed at the $33.25 zone, forming a key horizontal resistance level (red dotted line). At the same time, each pullback was bought up at gradually higher prices, forming a rising trendline (green dotted line).
Here are three reasons why POT stock may finally break out:
Time works wonders in healing the damage dealt by mega down gaps like that seen in POT stock six months ago. With the passage of time, the pain suffered by the one-day 23% drop fades into memory. The optimism of market participants eventually returns and a new advance finally takes root.
Wednesday’s high-volume surge in POT lifted the stock slightly above the aforementioned resistance level at $33.25 to its highest close in six months. While it would have been even more convincing had the price risen a bit higher, any close above this pivotal ceiling should be looked at as a victory for the bulls.
Watch closely to see if POT stock builds on Wednesday’s breakout attempt.
The large down-gap from last July created a price vacuum or void that could be filled in short order once Potash stock can successfully break out of its base. Unfilled gaps create areas of little overhead resistance. In other words, with less potential sellers overhead, it’s easier for a stock like POT to ramp higher.
To exploit a potential upside pop in POT stock, consider buying the March 33-36 bull call spread for $1. The trade is entered by buying to open the March 33 call and selling to open the March 36 call. The risk is limited to the initial $1 and the max reward is limited to the distance between strikes minus the net debit, or $2.
Since the bull call spread costs $1 and can rise in value to as much as $3 (thereby netting you a $2 profit), you have the potential to triple your money should POT rise to $36 by March expiration.”
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
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