Tuesday, February 19, 2008 at 01:26AM
Our readers have asked is this a Dead Cat Bounce or Trend Reversal? So we took a quick look. Whilst pouring over the charts of a number of uranium stocks we were frankly amazed at some of the lows that these stocks have touched. Is it safe to buy now?
With very few exceptions the charts for most uranium stocks follow a similar pattern of racing ahead of themselves on the back of a rising uranium price and then falling back to earth as uranium was shunned during the scramble for cash. Trying to discern a trend at this micro level based on such a short period of 'levelling out' is a sure way to embarrass ourselves, but we will give it a shot. Individual stocks will of course behave according to their own criteria so the question is more general in that can we see this sector turning upwards or is this another false dawn.
The three charts below illustrate the rise and fall of this sector reasonably well as you can see. The first is CCJ, followed URE and then AXU.
We can see that these sample uranium stocks are trading below their own 50dma lines (blue) and a long below their own 200dma line (red) unlike gold stocks for instance which are mostly trading well above their moving average lines. The technical indicators for these uranium stocks have been muddling along at the bottom of their respective ranges, in the buy zone for some time now. Recently they have come back to life and are mostly heading or pointing north. As with most declines or rises they have not been formed on a straight line go to basis, there have been minor rallies along the way. These rallies have served to offer some investors a suitable entry point and other investors the opportunity to limit their loses by selling into them. The activity of the latter has to some extent minimised previous rallies but the over-riding negative factor must be the falling spot price of uranium which is there for all to see unlike the private sales between the producers and the utilities that go on unseen. And so the spot price does to some extent take centre stage and when it drifts lifelessly it casts a long shadow over this sector spooking investors. This is a very thin market with some of these companies trading less then $1.0 million worth of shares in one day. That's a large amount of money to us but its small change to the bigger players. The point being that some of these thinly traded stocks can be moved up or down by a small amount of dollars. Since November 2007 we have seen investors steadily withdraw their cash and hence we arrive at today's stock prices.
Our view, for what its worth, is that we would like to see the price of uranium stabilise and then start to rise if this mini rally in uranium stocks is to continue. If you cant wait any longer or you think that they are great value now then by all means re-enter the market gently and start building a position. We will watch for another week or so.
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