Wedge Pattern Example, Potash Corp (POT)

The following stock chart of Potash (POT) offers a great example of a bearish wedge pattern which ultimately lead to lower prices for this once high flying fertilizer stock.

Wedge patterns are a basic form of technical analysis spotted when a series of support and resistance points create a distinguishable wedge like pattern. From left to right the wedge goes from wider to smaller, with a bullish wedge pointing up and a bearish wedge pointing down. Whatever direction the stock decides to break out of the wedge becomes a good entry point for investors to go long or short.

Note: this chart of Potash (POT) stock is a eight month daily chart:

1. The blue 1 show where Potash broke out of a late stage base on strong accumulation volume. For investors the stock would see one more breakout in early June before forming its bearish wedge.

2. The blue 2s show how the bearish wedge was formed through June and July. Since the wedge was pointing down it was classified as bearish and a break down of this pattern (3) was a entry point to go short or sell any long term position in the stock.

3. The blue 3 shows where Potash broke down and had a very heavy distribution day as the stock closed at nearly $180 a share.

4. The blue 4 shows where Potash broke down again as the stock rallied back to $180 in mid August but on this particular day had another heavy volume sell off as the stock gapped down below $170 support. Since this time Potash has tumbled over 15%.

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