Potash (POT) was a major “go-go” stock of 2007 and part of 2008 as it helped investors ride up the commodity market ‘boom,’ but the crash was severe in the latter part of 2008, erasing almost all of the prior gains.

We’ve rallied sharply in 2009, but as you’ll see from the chart, the recent 70% rally from the late 2008 lows into the June 2009 highs was only able to reach the 38.2% Fibonacci retracement price of the entire down-move, which provided major resistance there.  Let’s take a look at both of these examples.

First, I wanted to show the ‘arc’ beginning in late 2006 that traversed upwards into a climax at the $240 level when the arc turned vertical - such price advances are unsustainable, and a crash often follows such a steep and impressive arc formation.

It just so happens that this arc formed a nice weekly doji  (or shooting star) candle at the highs before ‘falling off a cliff’ to collapse from $240 to $50 in sudden fashion.  This is a lesson for beginners on the principle “what goes up, must come down.”

More pertinent to today’s action, the rally upwards off the $50 lows managed to retrace only 38.2% of the down-move from $240.  Fibonacci levels are expected to provide chart support and resistance when tested, as this example shows.

Price is now in a precarious position, having failed to overcome the key resistance at the 38.2% level ($122 per share) and is now beneath both the 20 and 50 week EMAs, which are in a bearish orientation.

A bearish ’shooting star’ candle formed last week at the $100 “psychological” and EMA resistance level, which is likely (almost certain) to hold should the broader stock market continue to fall from current levels from confluence resistance.

Potash teaches us a bit about “go-go” stocks, parabolic arcs, and Fibonacci retracements.  See what else you can learn from this powerful stock’s chart.