When a daily chart pattern is bullish, and the weekly chart of that same stock is bearish, there will come a time when it will approach a crossroads. I saw this occur in Potash (POT) when a very bullish daily chart slammed into the low end of weekly resistance. Since then, the stock has started to correct nicely to the downside. I don't know if my downside targets in Potash will be met -- but, if I were in a short position, I would be trailing a stop and letting the market tell me when to get out.
I'm seeing this again now in Mosaic (MOS) -- the beginning of a very important tug of war. Let's start by looking at a daily chart that includes the larger prior rally swings, which identify current resistance. If you'll notice, thse swings have brought the stock higher anywhere between $13.30 and $18.30.
The price is currently stalled within cents of one of these projections -- the 100% projection of the $15.47 swing between the June 17, 2011 low to the June 25, 2011 high. This amount, $15.47, was then projected from the low made on June 4, 2012, which gave us possible price resistance at the $59.90 area. Quite a bit more resistance also comes in above that, between $61.81 and $63.98.
So far, the recent high in Mosaic has been made at $59.95, which was within a nickel of this 100% projection, and we are seeing a bit of a pullback from that high. The case for the bears will be verified, therefore, if Mosaic cannot clear this key daily resistance. (That might be a little more obvious by looking at a weekly chart.)
Here's where the tug of war comes in -- so let's look at the more recent daily data for our bullish case. In assessing the daily chart again, I have a bullish case, but only against specific levels. If the price fails to hold and fire off a buy trigger against the zone I'm about to define for you, do not take a buy side entry against it.
The wider support cluster comes in between $57.09 and $57.79. You can also break this down into two smaller zones if you'd like -- $57.09 to $57.43 and $57.72 to $57.79. Now, the case for the bulls is a bit stronger at this moment. Just remember that this could easily change, as the stock is at an important crossroads. The bulls have the 200-day and 50-day simple moving average on their side, and the five-bar exponential moving average is still above the 13-bar EMA. The immediate short-term pattern is still a bullish one of higher highs and higher lows. I'll consider this pattern intact unless the Aug. 2 low is taken out.
So what do you do with this information? Once again, it depends on what time frame you are personally trading. For myself, I prefer trading in the direction of the immediate trend, and for Mosaic that is currently still upward. So I'm going to see if Mosaic stabilizes into the support decision -- and, if it does, I'm going to look for a buy trigger. If one does fire off, my maximum risk will be defined below the Aug. 2 low. The minimum risk would be defined under the low made into the support decision prior to the trigger firing off.
Now, if this same key support is violated along with the Aug. 2 low, that's when I will start to focus my setups on the sell side. Until then, I'll stay with the buy-side decision. Let's see who wins the tug of war!
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