Potash finally posted an extremely bearish day. Although I felt strongly that the stock was ripe for a fall, I have to admit I got a little nervous when the stock started creeping dangerously close to my stop in the $215 range (I went short at $208.77).
I highlighted a few important happenings on the chart below. First, take a look at the bearish candle formation formed over the past two days on heavy volume. This is a classic sign of a short term top (we won’t know if it’s a long term top until a support level breaks).
I expect to see the stock test support at $190. That is my target for this trade, although I may take partial profits earlier.
Now take a look at the volume pattern. What attracted me to this stock as a short setup (besides the extreme overbought condition) was the fact that the stock rose on low to average volume. That, coupled with the high volume down move, has to concern anybody long this stock.