Potash Trade Update: Technical’s & Fundamentals Aligned

On Thursday 12 January I wrote about a potential trading opportunity that was setting up for the Canadian fertiliser producer, Potash Corporation. The stock had formed a bullish Inverse Head and Shoulders pattern which subsequently broke out to the upside. The move towards my target area of $49 – $50 is now underway.

Technical Analysis

As the chart below shows the Stochastic Oscillator still shows bullish momentum for the stock (large circle), however it is now nearing the top of the range. Couple this with the fact that the Commodity Channel Index (CCI), and the William %R indicators are overbought (not shown) and I think it’s safe to say a pullback is on its way.

Support should be found at the neckline at around $43.50 and I would expect a decent bounce if this level is reached. This pullback should then setup the next move toward the $49 – $50 area.

A 3 Month Chart of Potash Corp. [NYSE:POT]

Chart courtesy of Stockcharts.com

Fundamental Analysis

The fundamentals, that is, the long-term supply and demand picture, are also very bullish for potash – both the substance and the company.

As well as being the name of the company mentioned here, potash is the common name for the potassium-containing salts which are used as fertiliser in the agricultural industry.

There is currently no commercial substitute for potash and demand is expected to increase substantially in the coming years, as the world population grows and intensive farming increases to meet the dietary requirements of emerging middle classes in Asia, Africa and South America.

The International Fertilizer Association estimates that demand for potash will continue to grow at 3.5% a year, based upon current consumption patterns. This equates to approximately two million tonnes of new production every year.

The fact is, the modern agricultural industry cannot get away from using potash-containing fertilisers, since they are responsible for 50% of current crop yields.

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