Merv's Weekly Commentary 10 May 2009

Merv’s Weekly Uranium Review
for week ending 08 May 2009

Merv’s Daily Uranium Index
Market Data for Friday 08 May 2009

Open: 184.89
Hugh: 190.53
Low: 179.96
Close: 185.96
Volume: 5720

Note that the volume is an average volume of round lot sales for the 50 component stocks. For total volume, multiply by 5000.

I’m not sure if anyone noticed but looking at the two Indices shows the difference in performance between the higher and lower priced stocks. The higher priced stocks, represented by the Daily Index, closed on Friday just shy of a 100% gain since its bottom. The lower priced stocks, represented by the Weekly Index, closed on Friday just shy of a 200% gain since its bottom. NOW we see why so many speculators prefer the lower priced stocks to the higher “quality” stocks. BUT, you say, you can lose a whole lot more in the lower priced stocks than the higher priced ones. As everyone knows, the lower priced stocks drop a lot further than do the “quality” issues. So I looked at the recent decline. The higher priced stocks (Daily Index) lost 84.2% from their top to their bottom in the recent mess. The lower priced stocks (Weekly Index) lost 87.0% during this time. Hmmm, yes, I see the difference. On an average you would have lost 2.8% more in the lower priced stocks. BIG DEAL?

You might say that this is just a coincidence and not generally true for stocks. Well, recently I did the same survey for gold & silver stocks. In my gold service I have developed several different Indices representing different sectors of the precious metal stocks (quality, speculative, gambling etc.). The results between the quality and speculative (or gambling) stocks was almost identical to the above uranium results. The only difference was that for that survey I looked at complete bull and bear market cycles and the results for the bull cycle were multiple levels higher for the speculative stocks than the uranium data so far shows. So, maybe we still have multiple levels more to go with the uranium stocks.

The surveys assume a buy and hold strategy. As we now see, that strategy has been shown to be a disaster versus a buy and sell one. Buy and hold is for losers. Yes, I know. You can even lose with a buy and sell strategy but the difference is that with the buy and sell, in the worst case, you still are left with cash in your hands (even if with a small loss) instead of worthless pieces of paper that may require multiple 100% moves before breaking even.

So much for today’s tirade. We had another positive week but not fantastic. If we took away Monday’s action we would probably be in a downer. We are expecting what I refer to as a rest period or a short decline and this might be the start. Too many things seem to suggest it. But let’s get right into the daily/weekly data and indicators.

The Merv’s Daily Uranium Index closed on Friday on the up side. It was up 6.94 points or 3.88%. There were 30 daily winners, 13 losers and 7 going nowhere. As for the five largest stocks, Cameco gained 1.8%, First Uranium gained 0.7%, Paladin gained 6.5%, Uranium One gained 1.4% and USEC lost 1.8%. The best winner of the day was Fronteer Development with a gain of 18.8% while the loser on the day was Quaterra with a loss of 8.6%. I’ve noticed that the losers of the day have more and more been small losers with only single digit losses. During a bull market one expects that the losing stocks will not lose much.

On the week as a whole, the Merv’s Weekly Uranium Index closed the week on the up side by 110.37 points or 2.01%. There were 27 weekly winners, 19 weekly losers and 4 confused and didn’t know which way to go. For the five largest stocks, Cameco gained 1.9% on the week, First Uranium gained 17.8%, Paladin gained 4.1%, Uranium One gained 7.6% and USEC lost 13.4%. The best weekly mover was Energy Fuels with a weekly gain of 28.6% while the worst weekly mover was USEC with a loss of 13.4% loss.

With a week that was basically a positive week the analysis becomes real easy. Looking at the long term the weekly Index remains above its long term positive sloping moving average line and the momentum indicator remains in its positive zone above a positive trigger line. The only hold-out here is the long term daily indicator. This momentum indicator is still below its neutral line and lagging behind the trend set by the weekly. One will remember a few weeks back when the Weekly Index made its upside break above its long term moving average line with the line turning upwards before the Daily did. This is unusual as the higher priced stocks usually make their moves first and the speculative lower priced stocks follow after. However, we go with the flow. The volume indicator remains positive above its positive trigger line. All in all the long term rating remains BULLISH.

On the intermediate term all is still a-okay. The Daily Index remains well above its positive sloping moving average line and the momentum indicator remains in its positive zone. However, the momentum indicator is just slightly below its trigger line although the trigger is still in a positive slope. The volume indicator is into a lateral drift but still above its positive sloping trigger line. The Daily Index has risen far and fast and is at the top of an up trending channel. It just might decide it wants to move lower towards the lower support line, although I don’t think it will go all the way. I see a support at around the 160 level as a more realistic support for any downward trend. Anyway, the intermediate term rating remains BULLISH for now.

Things are looking a little toppy on the short term. In mid-March the Index crossed above the short term moving average line, the line turned upwards, the momentum indicator moved into its positive zone and the very short term moving average line crossed above the short term line. We’ve been in that basic condition ever since. The only warning we have of a weakening condition is the downward path of the short term momentum. It is still in its positive zone but has now dropped below its overbought line and below its negative trigger line. Just a warning at this time but one that shouldn’t be ignored. The topping is also pretty evident from the chart. Still, the short term rating has not yet changed and remains BULLISH.

As for the direction of least resistance, that would continue to be to the lateral direction, although the indicators seem to suggest more immediate downside potential. The Stochastic Oscillator is plunging lower but is still in its positive zone. The very short term moving average line has flattened out but still in a slight positive slope. So things are still positive but very weak and could change on a day’s action.