Agrium (AGU) - Support Levels

All four stock that we look at yesterday morning went down in the general market selloff. When that occurs, we want to look for possible levels of support. If a stock is in a downtrend and there are only weak levels of support, or no levels of support, the stock is extremely vulnerable to getting hit very hard.

Review of Agrium (AGU):

1. In November, the stock broke below the neckline (upward sloping blue line) of a Head & Shoulders Top. When stocks break down, they tend to go down a lot faster than the time that it took for them to go up. AGU got to the H&S Top target of 78.26 in only 3 days.

2. After a selloff like that, a stock needs to settle down and try to establish a base from which to launch another rally, if it can, which is what AGU did from mid-November to mid-December. After it broke out of the Bullish Falling Wedge (sharp downward-sloping blue pattern) on December 16, it gave a number of Buy Signals basis the Fibonacci Sequential measures of Relative Strength that I use. Those Buy Signals are the horizontal green lines. They were resistance before they got taken out to the upside, so they now become possible levels of support.

3. After AGU broke out of the Bull Flag (the pattern in green) on January 12, 2011, it got to the 95.00 target, which was the top of the pattern, then sold off into Wednesday's close. The top of the pattern (Green Trendline #1-#3)"should" act as support on any selloff, and it did hold on a closing basis on Wednesday. That trendline was at 90.65 yesterday. AGU gapped down below it at the open, rallied to 90.66, just a penny above it, then in the first 5 minutes of trading it also took out the 89.10 low of the pattern at Green #4, 89.01. That's the horizontal red line.

4. When the low of a pattern that has broken out to the upside gets taken out to the downside, any remaining targets that were IN PLAY are CANCELLED. The outstanding target of 97.45 from the Bull Flag breakout might be achieved down the road, but as the chart stands right now, a play for that target was technically stopped out on the break below 89.01, which was the low of the Bull Flag.

89.01 now is the first level of resistance to be broken through on any rally from here. The reason for that is because players who recently bought AGU during the formation of the Bull Flag and who still are holding the stock had a nice gain when it broke out to the upside, but if they didn't "take at least 'some' profits when the 95.00 target got MADE," they all are sitting on a loss and are possible sellers if they get can out of their postion at a better price than yesterday's close of 87.62. If, for example, they paid 89.62 for the stock and AGU rallies $2.00 to that price today, they will be thinking, "Okay, I can get outta this thing at a break even" and they will sell. That kind of selling causes RESISTANCE to upward movement in the price of the stock, particularly after it just has broken down.