for week ending 04 September 2009
Merv’s Daily Uranium Index
Market Data for Friday 04 Sep 2009
Note that the volume is an average volume of round lot sales for the 50 component stocks. For total volume, multiply by 5000.
Note that additional charts of the Daily and Weekly Indices were posted earlier and should be viewed during this commentary.
If one looks carefully at the two Merv’s Indices posted earlier one notices an interesting difference between the two performances. Since the bottom in Oct/Nov of last year to the recent recovery highs the Weekly Index out performed the Daily Index by a factor of almost two to one. From the recent highs to the recent lows the Weekly Index declined less than the Daily. Looking at where we are today versus the recent highs the Weekly Index is still about 12% below its previous high while the Daily is about 15% below its previous high. What goes on here, as both Indices have the exact same component of stocks?
As I had mentioned in the past, each Index is calculated differently. The Weekly Index is calculated based upon the average weekly performance of all component stocks while the Daily Index is calculated based upon the summation of advancing and declining prices of all component stocks multiplied by a factor to account for new additions and deletions of differing prices (similar to the method used to calculate the Dow Jones Industrial Average). By these methods the Weekly Index favors the lower priced stocks while the Daily favors the higher priced stocks. As an example, say we have two stocks. Both stocks are assumed to have moved 25% in price. Stock A from $0.40 to $0.50 while stock B from $4.00 to $5.00. Both stocks would have the exact same effect on the Weekly Index as each has the same % change. However, Stock B would have a much, much greater effect on the Daily Index in the summation of advancing and declining prices as Stock A only advanced $0.10 while Stock B advanced $1.00. The reverse is true if we look at equal $ change. Say Stock A moved from $0.40 to $0.60 for a 50% move. Stock B to have an equal $ change would move from $4.00 to $4.20 for the same $ move but only a 5% move. Both stocks would now have the same effect on the Daily Index but Stock A would have a much, much greater effect on the Weekly Index. SO WHAT, you say.
When looking at ANY Index one must understand what that Index is really telling you and whether it applies to what you are after. If one were a cautious investor one would be more interested in the performance of the Daily Index as this reflects more of the actions of the higher priced stocks. If one were more interested in speculative gains one would be looking at the performance of the Weekly Index as this more represents the actions of the low priced stocks. Putting it another way, if you were a technology stock speculator why would you be interested in what the Dow or S&P 500 were doing? Why not look at some Technology Index to understand what technology stocks are doing. They may be moving in a complete opposite direction to the Dow or S&P 500.
Before getting into the commentary of the week-end let’s delve into some very interesting comments/questions from the comments over the past few days.
First, let’s look at the situation brought out by the comments for 03 Sept 2009, the “progressively oversold” situation. In reality there was only one period where the Stochastic Oscillator (SO) was oversold, that was in the 07/08 period. The other periods mentioned were normal weakness during a declining market. I would not read anything into these periods as they are occurring too far apart. In addition, the Index and SO in 9/1 were at a higher level than the Index and SO in the 7/8 period therefore not a divergence but a SO confirming the Index, minor differences but still a confirmation. In the end, the SO is a very short term indicator and any potential trend reversals it may suggest would only be valid as very short term reversals. You would have to go to longer term indicators to determine if such reversal may have a longer term impact.
As for reference to the S&P500, I would be hesitant to tie the resource market (gold, uranium or what have you) to an industrial or technology Index. Relationships between the two may exist, from time to time, but I don’t think one can rely on such relationship on a continuing basis. In addition, appetite for risk increases with a booming market and decreases with a stagnant or negative market (only human nature).
As for the Aroon indicator, I have looked into it lately but have not found it to be of any additional benefit versus simple indicators that I use. However, I would never discourage anyone who is using it and finds it to be useful for their use. There are many dozens of good indicators out there, used by many investors and speculators, none of which are found to be of universal benefit for everyone’s use.
As for the long term Weekly Index, I show it going back to the initial development of the Index to show where we came from and that profits or losses are greatly dependant upon when one entered the market. Perspectives about uranium stocks depend upon if one is still in the profit mode or into the loss mode.
I talk too much, back to the normal commentary, simple analysis from a simple technician.
On Friday the Merv’s Daily Uranium Index made another upward move. It gained 2.24 points or 1.36%. There were 30 winners on the day, 13 losers and 7 not going anywhere. It’s interesting that, although the Index had a reasonable gain on the day only one of the five largest stocks ended with a gain. Cameco lost 0.3%, First Uranium lost 1.4%, Paladin lost 0.7%, Uranium One gained 2.5% and Uranium Participation lost 3.1%. The best winner on the day was Strateco with a gain of 23.2% while the loser on the day was Powertech Uranium with a loss of 12.5%.
For the week as a whole the Merv’s Weekly Uranium Index gained 108.13 points or 2.18%. There were 26 weekly winners, 20 weekly losers and 4 going nowhere. As for those five largest stocks, Cameco lost 4.4% on the week, First Uranium gained 5.7%, Paladin gained 0.7%, Uranium One lost 0.8% and Uranium Participation lost 3.7%. The best winner of the bunch this past week was Ucore Uranium with a gain of 39.6% while the loser was Powertech Uranium with a weekly loss of 15.2%.
The Weekly and Daily Indices are above their long term moving average and the average lines are sloping upward. We still have that same situation with the momentum indicators. The Weekly momentum indicator is slightly above its neutral line while the Daily long term momentum indicator is slightly below its neutral line. Both are above their positive sloping trigger lines. The Daily Index has the volume information. The long term volume indicator remains in a negative position, below its negative trigger line. Putting it all together I still have the long term with a BULLISH rating.
On the intermediate term despite three good days for the Daily Index it remains just below its negative sloping moving average line. The momentum indicator is moving in an upward direction and is above its now positive sloping trigger line, however, it remains just very slightly in its negative zone. Maybe another day will do it. The volume indicator remains negative below its negative trigger line. For the intermediate term the rating must remain BEARISH for now.
Looking at the short term situation things are improving but have not yet done so to completely turn around the ratings. The Index closed on Friday above its moving average line but the line slope remains slightly negative. The momentum indicator is moving higher and is above its positive trigger line but remains inside its negative zone. The daily volume action remains somewhat unimpressive but that might be due to the long week-end. All in all the short term has improved but only to the + NEUTRAL rating.
Looking at the chart we see what I mean by the fact that the Stochastic Oscillator is a short to very short term indicator and one should look for differences in the SO/Index on a short term basis rather than some distance away. Here we see three slightly higher highs with corresponding weakness in the SO. This WAS indicating weakness in the underlying Index moves which culminated in the recent decline in the Index. BUT the decline was of a short term duration. Now, the rally is showing some short term strength with the SO above its level of Aug 21/24 while the Index is still some distance below its level. However, if we look at the next time period momentum indicators this strength is not yet noted. It might come but at this time the other momentum indicators are confirming the Index move but not yet showing any extra strength behind it.
The SO is a good indicator to determine turning points in a stock or Index BUT it is NOT a good indicator as to how long the turn will last.
Well I guess I have talked for long enough today. I should post this commentary before I run into Tuesday.