After a good move on Friday, the market seems prepped for a possible further push up on agriculture stocks like POT.to. The bullish case being made is that people need to eat under any economic circumstances and therefore stocks like this are safe bets.
As a technical trader, I'm not concerned with bullish fundamentals unless there are technical factors suggesting the same. Fortunately, I see several on POT.to, Saskatchewan’s giant potash company, that suggest possible upside in the near future.
First, Friday's breakout up-move easily pushed through two pivot resistance levels--55.97 and 56.58. This alone is a bullish sign to be sure, but please note that the push up also brought the price above a crucial inverse head and shoulders neckline. What this tells me is that any retrace back down to the neckline (currently just below 55.50) is a good buy. However, a close back below the neckline negates the trade.
If POT.to keeps going up, there is no major resistance until 59.67 and 60.50. And if it is able to show this much strength, re-testing February’s highs might not be an unrealistic expectation. But, like always in tech analysis, this pattern has its caveats.
For starters, the left shoulder is not ideal as it is considerably smaller than the right shoulder. I like this pattern best when each shoulder is roughly the same size. This coupled with an overall market that is very extended makes me cautious about jumping on board just yet.
Also of relevance, check out AGU.to, another agriculture stock with a similar inverse head and shoulders pattern. The same rules apply to this trade--a re-test of the neckline is a buy and a close below it is a stop out. AGU.to will have resistance at the 88 and 93 pivot highs.
On either of these trades, please mind your stops. Both stocks will not have significant support until their moving averages several dollars below the necklines.
I may take either POT.to or AGU.to for a long swing on a re-test of the necklines, as outlined in the charts above. If you're already in these trades for any reason, just be sure to use a stop to protect your profits. Also, just to reiterate, please be aware that the market is incredibly extended. Any and all stocks are due for a pullback at any time, including these. This doesn't mean that a bullish pattern can't play out, it just means be careful.
American readers should note that POT.to and AGU.to trade interchangeably with their NYSE counterparts POT and AGU.