Trading Update: Potash Corp., Corn & Sony Corp.

Potash

As the chart below shows, the Potash trade I first identified back on 12 January peaked out at $48, just shy of my $49-50 target. Fortunately those that took my advice and tightened up their stop losses back on 31 January would have still been stopped out at a nice profit.

A 3 Month Chart Of Potash Corporation

Chart courtesy of Stockcharts.com

Corn

The potential trade in corn that I outlined 25 January remains in play. Corn continues to form a Descending Triangle pattern which is a continuation pattern and is generally considered to be a bearish formation that indicates distribution.

The pattern is formed as the bears gradually gain control and repeatedly push down the price. This selling pressure is countered by the bulls who are able to put a floor under the price, establishing an area of support (blue horizontal line). As the pattern develops the pressure builds and either the bulls capitulate leading to a downside breakout which confirms the pattern as bearish, or the bulls win the day and the pattern becomes invalid.

When support is broken it typically becomes resistance and it’s not unusual for the price to return to this level before moving down in earnest.

The target price for a downside breakout is around 365, a figure which is calculated by measuring the distance between the widest two points of the pattern, and subtracting it from the horizontal support line.

A 15 Month Chart Of Corn

Chart courtesy of Stockcharts.com

The break below the horizontal support line should ideally be accompanied by a spike in volume, as this would help validate the move, however it is not absolutely necessary.

Sony

The other potential trade I mentioned 25 January was in Sony Corp. and the stock has now broken out of its Falling Wedge pattern. A falling wedge pattern is a contracting trading range with a downward tilt, illustrated by the two blue lines. This type of pattern is typically a reversal pattern and this was certainly the case with Sony.

A 2 Year Chart Of Sony Corp.

Chart courtesy of Stockcharts.com

The pattern was confirmed with a decisive breakout on high volume (circled) and the stock should now advance to my target area at around $26.

Note how having broken out of the pattern the price dipped back to test the downtrend line, something that is very common with this type of move.

  1. On Feb 14, 2012, Sony closed the day trading at $19.13. Today, Nov 2, 2012, the stock is trading at $11.33. Was there a stop-loss or an announcement made to cash out of one’s position from Sony if advice would have been taken and it was purchased on February 14? Thanks.

  2. Hi annmak12,
    These trade ideas should always be played with a stop loss to limit potential losses.
    This article was a follow up a piece I wrote on 25 January in which I identified Sony as a potential trade. In the 25 Jan article I said that “a breakout should propel the stock to around $26 however a tight stop should be set at around $16 to avoid disappointment.” The breakout did occur however the move peaked at just over $22.
    After the breakout the stop should have been raised to lock in profit. Unfortunately I am not able to write a follow up to every article.
    Regards,
    A.T.

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