Take a look at the pattern of highs and lows, too. After falling 80% in the last two quarters of 2008, shareholders have stopped selling into rallies. They’re aggressively buying POT. The chart shows an increasingly committed investor base since the Oct. 2 low. This trend is something fundamentals-based traders would miss. But with so many money managers focused on charts right now, it’s too important to overlook.
Potash’s most recent low registered at $65. Believers in the technical thesis, that buyers see POT moving higher, will be right if the stock stays above that level. So investors want to buy in as close to that price as possible. However, a dip below $65 means the chartists are wrong. Cramer’s problem with this is that a stock worth owning at one price is worth owning even more when that price goes lower. But technical analysis suggests cashing out, which seems to encourage buying high and selling low.
The fundamentals also suggest that Potash is a buy. Analysts have, over the past three months, sharply cut estimates for the fertilizer group. Demand declined, and capacity increased. But that capacity has since been reduced, evening out the supply-demand balance and pushing prices higher. Plus, seed maker Monsanto reported a strong quarter last week, saying that the upcoming U.S. planting season should be strong. And where there are seeds, Cramer said, there is fertilizer. Then there’s the worldwide food shortage and President-Elect Obama’s commitment to ethanol. So bullish trends are taking shape for the agriculture business.