I like the long-term weekly chart for several reasons. First, for most of the last year and a half the price has trended upward along the upward sloping 40-week moving average. This was followed by a high-volume breakout to around 80 cents in November and a healthy consolidation in the 0.60 to 0.75 range in December. I like the fact that the highs from May 2010 (60 cents) became support during the pullback. Finally, the breakout last week cleared resistance at 85 cents and set a new all-time high on record volume.
Taking a look at the daily chart we can get a better look at the breakout and the current pullback. The volume pattern is acting right, i.e., increasing volume on the breakout and decreasing volume on the pullback (aside from the reversal day). This stock has exhibited an orderly trading personality that gives traders opportunities to enter on breakouts and pullbacks and both of them seem to get bought. Looking forward, from a technical standpoint I would expect the pullback to find support at either the 85 cent or 80 cent level by which time the RSI will be back to neutral. Then the bulls will probably encounter some resistance at $1.00 and then $1.20. After that there could be lots of upside.
Potash is one of Scotiabank's "Top Picks" for 2011, which reflects the macro tailwinds behind this sector that will only blow stronger if commodity prices continue to climb. Potash spot prices are still well below their 2008 peak, but they are starting to pick up again.
There are a handful of potash miners that provide a way to speculate on this trend, including big boys like Potash Corp of Saskatchewan (TSX, NYSE: POT), Mosaic (NYSE: MOS), and smaller names like Intrepid Potash (NYSE: IPI), and Amazon Mining (TSXV, CVE: AMZ.V).
Allana Potash Corp is certainly a speculative play since they do not currently have any production. That said, their test drilling has identified good yields of KCl very close to the surface. This situation gives the potential for developing an open-pit mine that would be among the world's lowest cost of production. A catalyst for the recent breakout was the company's news release two weeks ago stating that test drilling "intersected two significant zones of potash mineralization including the highest grade intersection to date."
More from the company's website allanapotash.com: Allana Potash is a Canadian potash company focusing on the exploration and development of a previously explored Dallol potash property in the Danakil Depression, Ethiopia. The Danakil depression had small-scale potash production in the 1920's and was extensively explored in the 1960's with nearly 300 potash drill holes. The Company has strong management with experience in the potash industry and Inferred Mineral Resources of 70.3 million tonnes of kainitite mineralization grading 61.7 % kainite and 30.3 million tonnes of sylvinite resource grading 25.4 % sylvite (combined 105,200,000 tonnes with a composite grade of 20.8 % KCl).
Major advantages: (1) Strategic investment from and off-take agreement with a Chinese mining group, (2) An inferred mineral resource of 105,200,000 tonnes of potash mineralization (Sylvite and Kainite) with a composite grade of 20.8% KCl, (3) Near-surface (shallow-depth) potash mineralization (within 50 meters of surface), (4) Potential for solution or open-pit potash mining, (5) 16 drill holes immediately on Allana’s property, (6) Unique environment that may provide for low-cost production utilizing solar evaporation and geothermal power, (7) MOP (muriate of potash) and SOP (sulphate of potash) production are both feasible
Locking up resources in the ground is a terrific idea - Jeremy Grantham
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