for week ending 12 November 2010
Merv’s Daily Uranium Index
Market Data for Friday 12 Nov 2010
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.
Thou request is my command (or something like that). Posted earlier is the performance of my Merv’s Weekly Uranium Index which I started in the first week of 2003. I don’t know what the performance might have looked like if I had started it earlier but boy, what a ride until 2007. The Index gained over 14,500% (no, there is no decimal there) before topping out. From there it declined 87.0% in value before hitting its low point in 2008. It has now recovered over 300% from its low, or to put it another way, it has recovered 50% of its previous decline. This Index mostly represents the performance of the low priced or more speculative uranium stocks.
The Merv’s Daily Index represents the performance of the larger or quality uranium stocks. I don’t have this Index as far back as the Weekly but I can compare its performance from the 2007 high to the present. The Daily Index declined 85.1% from its high to its low in late 2008. That is within a couple of % points from the decline in the speculative stocks. Since the low this Index has advanced 140% or to put it another way, it has recovered 25% of its previous decline.
Just review those figures and tell me why anyone focuses on the biggies instead of speculating on the lower “quality” stocks. You get the same decline but double the advance from the cheapies. Just wondering. In either case you would not place ALL of your capital on one stock and expect that you might not lose. Spread the wealth among 3 to 5 stocks. You win some (big) and you lose some (very little if you play the charts).
That’s my sermon for the day.
Getting back to the markets, Friday was a real waker-upper, although expected. The Daily Index has now closed below that third FAN PRINCIPLE trend line for a blow-off stage bear signal. For the normal FAN trend lines, ones that have a common apex point or origin, the breaking of the first FAN trend line is a nothing event. The breaking of the second FAN trend line is the reversal signal and the breaking of the third FAN trend line is the final confirmation of the reversal. For Accelerating FAN trend lines with no common apex point, such as the one we have here, it’s the breaking of the third FAN trend line, the first line that gets crossed, that is a final reversal signal and no other crossing is needed.
Despite the FAN signal let’s go through our usual routine and see what the normal indicators are telling us. But before that, the data information.
The Merv’s Daily Uranium Index closed on Friday with a loss of 7.05 points or 3.10%. There were only 4 daily winners, 42 daily losers and 4 stocks hiding under the covers. Cameco lost 3.4%, Extract was hiding under the covers, Fronteer lost 4.6%, Paladin lost 3.8% and Uranium One lost 5.2%. The best daily winner was Forum Uranium with a gain of 5.6% while the loser of the day was Uracan with a loss of 8.3%. There should be some encouragement that even though it was a bad day with almost all of the stocks in declines, none were in any heavy declines. Market Vectors Nuclear Energy ETF lost 2.8%.
Despite Friday’s debaucle The Merv’s Weekly Uranium Index closed on the up side during the week with a gain of 549.90 points or 7.35% (the Daily gained 5.56% on the week). There were 38 weekly winners, 11 weekly losers and only 0ne hiding under the covers. Cameco gained 9.4% on the week, Extract gained 7.7%, Fronteer gained 1.7%, Paladin gained 1.9% and Uranium One lost 4.2%. The best weekly winner was Uranium Resources with a gain of 52.6% while the worst weekly loser was Ucore Rare Metals with a loss of 13.3%. Market Vectors Nuclear Energy ETF gained 0.8% on the week.
For my dual long term charts posted earlier I had used a weekly version of my Daily Index to show a direct comparison between the two Indices. What is really striking between these two charts is the performances of these Indices since they reached their recent lows in July.
The long term analysis for both Indices is the same. Both are well above their respective positive sloping moving average lines. Both have their long term momentum indicators in their positive zones although the Weekly Index momentum has now entered its overbought zone suggesting it might be time for a rest. The Daily Index volume is on a tear, on the up side. For both Indices the long term ratings are BULLISH.
Going to the Daily Index for my other time periods, the Daily Index is still some distance above its positive sloping intermediate term moving average line and in no danger from dropping below the line in the immediate future. The momentum indicator remains in its positive zone but that’s about it. It was in the overbought zone but has now reversed and dropped below its overbought line and has moved below its trigger line although the trigger is still slightly positive. The volume indicator is still very positive but does look like it could be topping out. It remains above its positive trigger line for now. All in all, the intermediate term remains BULLISH, but with warning signs. The short term moving average line remains above the intermediate term line for confirmation of the bull.
On the short term things are not much different. The Daily Index is still above its positive moving average line. As for the short term momentum indicator, it remains in its positive zone although it has dropped below its now negative trigger line. For an aggressive indicator such as this short term RSI I think the overbought and oversold limits should be upgraded to 80% and 20% (the standard software limits are shown on the chart as 70% and 30%). Changing these limits we get the indicator dropping below its overbought line for a reversal warning. The daily volume action suggests a sudden decrease in speculator interest right after the Index reached its high point. This is usually good but does indicate the potential rest or reaction potential ahead. Lack of speculative interest often causes a negative reaction in the market. Still, when all is said and done the indicators still give us a short term rating of BULLISH. The very short term moving average line continues to confirm this rating.
As for the immediate direction of least resistance, I’ll go with the down side simply to go with the FAN.
Just a comment on trading strategy, if you are into stocks I would not be inclined to sell the stocks just because the Index turns around. In the end go with what the charts are saying about your individual stock. It is not uncommon that during a bull market the Index (representing a whole lot of component stocks) may turn around for a while BUT that many stocks may not follow suit and may even continue to advance. Indices are good to understand the general environment you are in but in the end go with what the charts are saying for the individual stock. As an example, the Index may be signaling the end of the blow-off stage with a decline (in the Index) ahead. Individual stocks may end up doing something completely different.