Potash Corporation of Saskatchewan (POT) — a producer of potash, phosphate and nitrogen to the agricultural and industrial industries — got a little bit weaker last week, with POT stock falling off last Thursday after reporting fourth-quarter results.
Potash earnings came to 26 cents per share, shy of the 33 cents Wall Street expected. On the revenue side, POT came in at $1.54 billion vs. the estimated $1.36 billion by analysts, but sales were down 6% on a year-over-year basis — to $1.54 billion from $1.64 billion.
Overall, the report was looked at as weak, particularly given the 50%-plus decrease in margins for the fourth quarter and the 45% drop in earnings. This type of drop-off in profitability is hard to spin in a positive way — particularly when the company also gives weaker than expected guidance. Potash forecast earnings per share for 2014 in a range of $1.40 to $1.80, well below the $2 that analysts were looking for. With these kinds of results, it’s no wonder that the charts of POT stock look so feeble right now.
As a result of the report, POT stock lost around 2% last Thursday, though it did manage to close well off the day’s lows and proceeded to bounce just a little on Friday.
Potash stock is closely followed by the trading community as it often trades with plenty of volatility and respect for its various technical levels of support and resistance.
On the multiyear chart below, the important support level since the summer of 2009 has been (and continues to be) around the $28-$29 area, for a clean break below there could really accelerate a downward move in POT stock. So far, though, this level has held, and the latest test of it in July of last year is a testament of its strength of support.
But on the daily chart, POT stock again touched a thinning area of support late last week. Potash’s rally off the August 2013 lows has traced out a bearish pattern that could be looked at as a bear flag. Until support is broken around the $30.50 area, POT stock still stands a chance of getting back on its feet.
It is worth noting that during the past six months, Potash stock has been largely range-bound, and that after finding resistance at the upper end of the channel — which coincided with the falling 200-day moving average (red) — POT is again trying to bounce at the lower end of the range.
POT stock routinely offers up sound trading setups, but picking the right spot is important. For my part, Potash now has some repairing to do if it wants to rally again, thus the bulls need to exercise some patience and let the stock develop a better bottom.
Should Potash stock drop below $30.50, I would be interested in a try to the short side with a first target around the $28 level.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.