I have been studying the chart for POT.TO (Potash Corp) lately looking for confirmation about what may lie ahead for the TSX Composite Index. Potash Corp is definitely one of the stocks contributing to the January rally on the TSX. The wedge shaped rally is more pronounced with POT than it is for the Comp Index.
Today was not one of the larger volume trading days, but about $188 million changed hands today for shares of this one stock. $500 million per day is closer to the longer term average daily trading.
I see a high probability that this stock is ready for a good price tumble. If true, all those buyers today will soon be surprised and disappointed.
A few facts.
$160 per share and a P/E ratio of 48. This P/E level is way too high and not sustainable.
Price has accelerated from $75 to $160 over the last 8 months (0.67 years).
A doubling of the price in 8 months. This is in excess of a 100 % increase per year.
The larger and larger price oscillations in recent months are an indication of a nervous and uncertain market. It is a sign of financial instability.
The chart looks more like a chart for a 5o cent penny gold mining stock than a blue chip stock.
It looks like a text-book example of classic irrational exuberance.
It will be interesting to follow this one.