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POT Growth & Income Trade Idea

With an a current dividend yield of 9.7% and the potential for considerable capital appreciation, POT (Potash Corp.) will be added as a Active Growth & Income Trade idea at current levels. Several near-term price targets are provided for typical swing traders while my current preferred target for a longer-term Gr & Inc. trade would be at least T3 (19.47) at this time.

POT daily Jan 13th

POT daily Jan 13th

Although I believe that a decent fundamental case can be made for an investment in POT, as with all trade ideas on RSOTC, the primary reason for entering this trade is due to the fact that the stock offers an objective entry based off the charts (technical analysis). As this 1o-year weekly chart below highlights, the recent bear market in commodities, including agricultural related companies such as POT (a fertilizer producer) has dragged POT down to rarely seen weekly oversold levels, which have historically preceded major bull markets in this stock. While oversold is not a stand-alone reason, especially as a timing indicator, to buy a stock, a case for a long entry here can also be made as POT is currently trading at long-term support (weekly chart) with positive (bullish) divergences in place on the daily time frame.

The current final target, T4, is 22.20 with a suggested stop on a weekly close below 14.90 (about 90¢ below current levels), offering an very attractive R/R of roughly 7:1. Swing traders targeting any of the earlier price targets might consider a more aggressive stop, using an R/R of 3:1 or better.

POT weekly Jan 13th

POT weekly Jan 13th

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4 Comments

  1. jupiter January 13, 2016 1:52 pm at 1:52 pm

    Before looking at the Weekly chart of POT, where there might be symmetry for the next up move, I wondered whether there has to be a trading range first (for the daily) from which there is a break before getting into a trade, or would that break just be on the top of the downward channel–but by then one would give up alot of profit should it break out.

    Thank you for any thoughts one would have.

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  2. rsotc January 13, 2016 2:56 pm at 2:56 pm

    Great questions. Viewing the daily time frame, POT appears to still be in a clear downtrend with little, if any, technical evidence of a reversal. The bullish divergence, which indicates the likely potential for a trend reversal, is the primary development that on that time frame that helps to confirm an entry here with the technical developments on the weekly chart (in the following order of significance) being the main reasons for establishing a position here: POT is trading at long-term support (especially considering the fact that so far this week, prices briefly broke below that level but has since regained it, a potential wash-out move/bullish development but we need that to stick by Friday’s close). We also have the fact that POT is & has been trading at rarely seen oversold levels.
    With that being said, you bring up some good points & I probably should have clarified that this is clearly a counter-trend trade taken on the anticipation of a reversal form at or near this long-term support level. As you mentioned, to wait for a breakout above that daily downtrend line would greatly increase the odds of this playing out as a longer-term trade, albeit at a less favorable entry price (about 10% or so higher).
    Although my current bias & outlook for the market remains bearish, I will also strive to post the best looking trade ideas, both on the long & short side, usually taking the majority of those trades personally. POT is a trade that I like for my longer-term accounts, like IRAs, in which even if the stock price trades sideways for months, the dividend (unless severely cut or eliminated, in which case the stock price would fall sharply & exceed my stop anyway) will provide a decent return as well as help buoy the stock in a falling market.
    One strategy for POT would be a partial (1/4 to 1/2 position) entry here, bringing the trade to a full position on a break above either the R1 level (16.72) and/or the first price target (downtrend line).

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  3. Shambo January 13, 2016 3:49 pm at 3:49 pm

    I will make a new post with charts

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Comments are closed.