3 Reasons The Uranium ETF (URA) Is Set To Shine

The presence of flat 200 day moving averages throughout many of the US Stock Market Indices and sectors, combined with a few other factors, is causing me to maintain a neutral / bearish stance toward equities for the time being. Luckily, as a technician I can take advantage of opportunities in other non-correlated liquid assets.

That being said, the Global X Uranium ETF (URA) looks good on the long side for a number of reasons.

 Here are a few:
  • The Uranium ETF (URA), despite being an equity ETF, has no correlation to the S&P 500 over the past month, quarter, and year. This is great given my view on equities at the moment.
  • My structural downside price targets for the Uranium ETF have been met while momentum diverged positively on multiple timeframes, suggesting we may be due for some mean reversion.
  • The risk/reward ratio is high and the risk is well defined.

Overall this backdrop has the characteristics I look for in this type of environment, and given the lack of interest / buzz around this particular space, I think a sharp rally can develop if price action continues to improve.

From a structural perspective, there have been few things worse than URA these past few years. It is down roughly 90% off of its 2011 highs and needs to reverse split occasionally just to remain trading. With that being said, my structural downside target at the 261.8% extension of the January – May 2015 rally was met this past August. More recently, the Uranium ETF retested the year-to-date lows, momentum diverged positively, and prices are now attempting a breakout above the accelerated downtrend line that’s been intact since May.

If this breakout holds, the next big hurdle is the trendline from the April 2012 lows near 15.50, but that’s still over 10% away from current levels.

Uranium ETF (URA) Weekly Chart

uranium etf weekly stock chart ura bottom december

The daily chart for URA provides a closer look at the retest of the year-to-date lows with momentum diverging positively. After a few weeks of basing, prices have finally broken out above the prior low near 13.50, as well as the downtrend line from the October highs. If this breakout can hold, the first target seems obvious at the downtrend line from the August highs near 15.25, which corresponds nicely with the longer term downtrend line on the weekly chart. Above that, there is prior support near 17, which also represents the 38.2% retracement of the May-December decline and the area of the downward sloping 200 day moving average. That is the ultimate price target for the Uranium ETF if the rally continues to develop over the next few weeks and months.

Uranium ETF (URA) Daily Chart

uranium etf ura chart rally higher price targets december 23It’s no secret that URA has been a serial underperformer versus the S&P 500 and many other asset classes, but the chart below shows a falling wedge developing in the ratio of URA/SPX over the past year, which could help turn that trend around in the short-term.

Momentum recently diverged positively as the ratio tested the lower trendline drawn from the February lows and is beginning to turn higher. The target in this ratio is up toward the downtrend line and prior highs near 8.0. and the risk is at the recent lows of 6.3.

I think the risk/reward is more attractive on an absolute basis, but I wanted to provide an additional viewpoint for those who like to approach the market from a market-neutral perspective.

Uraniam ETF (URA) / S&P 500 Ratio Performance Chart

uranium sector vs sp 500 ratio stock market performance chart

The Bottom Line:  The Uranium ETF has certainly been one of the worst performing sector ETFs in the world for years, but the weight of evidence suggests that this market may be due for some mean reversion. It may not be discussed as often as some of the more popular sector ETFs, or be as liquid, but as market participants we can still take advantage of the opportunities in this market as they present themselves.

From a risk management perspective I only want to be long this market above 13.50 on a closing basis, which represents the September lows. I ultimately think this breakout will continue to develop over the next few weeks and months, with prices testing the 38.2% retracement of the YTD decline and 200 day moving average near 17. With that being said, I do expect some resistance near 15.25-15.50. This rally will not occur in a straight line, but let’s take it one day at a time and see what the market does from here.

Overall, with a price target of 17, and a stop below 13.50, the risk/reward from current levels is roughly 6:1 and can reach much higher levels depending on where you choose to enter / exit this trade. Given the weight of evidence, I think we see a 20% rally in this market over the next few months.

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.

This post originally appeared on SeeItMarket.com on 12/23/15.

The author has a long position in the mentioned securities (URA) at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

For the full disclaimer, click here.

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Long WFM Trade Review (+5.81%)

Thesis: The stock is not correlated to the broader market, which is great because I remain neutral / bearish equities for the time being. Prices broke out above a downtrend line that’s been resistance all year, as well as the prior lows, while momentum diverged positively. The risk was well defined, and with prices roughly 30% below their 200 day moving average, the stock looked ripe for mean reversion.chartOriginal Plan: Buy 1/2 a position at the close on the day it broke out, and add on the following day if we got follow through, or a successful retest of support. Take profits near 34 on half the position and let the rest ride with a stop at break-even.  Continue reading

My Favorite Follows on StockTwits

In the three years I’ve been a market participant, StockTwits has quickly become an invaluable tool for me. This community is home to some of the smartest market participants out there, and the platform allows for a constant flow of market information, healthy debate, and knowledge sharing. With that being said, in order to fully take advantage of this powerful tool, it’s important to curate your own stream with users who provide the information that helps you to navigate the markets and improve your own process. Regardless of your timeframe, strategy, or education level, I can guarantee that if you take the time to curate a stream of your own, StockTwits will become a valuable tool for you as well.

Before I get into my 5 favorite follows, I just want to echo the recommendations that Ryan Detrick and J.C. Parets made in the posts that preceded mine. I agree wholeheartedly with their favorite follows, but in an effort to avoid repetition I’ll focus on five that have yet to be mentioned.

Without further ado, here are my 5 favorite follows on StockTwits:

Howard Lindzon @HowardLindzon – I know this one seems like a total copout, but hear me out on my reasoning. When you follow Howard, you’re essentially following 100s of the best market participants on the site.  Not only does Howard share his own trades and commentary on the markets, but he’s constantly sharing work from, and interacting with, some of the best and brightest minds on the site. Plus, Howard has a vested interest in the site; therefore you know he’s going to be consistently adding value to the stream.

SeeItMarket @SeeItMarket – Though this second one may seem like a plug since the members of DRC and I have started to contribute to this site recently, the reasoning for its presence on the list is very similar to Howard’s. When you follow this account your stream is going to be filled with quality, timely content from all of their contributors. The list seems almost endless and ranges from folks like Ryan Detrick to Ben Carlson and Venky Srinivasan.  Andrew Nyquist, the site’s founder, has done a great job at building a stream that offers a variety of perspectives on almost any market you can think of. Regardless of timeframe, strategy, or education level, there’s bound to be something for everyone on this stream.

Jon Boorman @JBoorman – If trend following is your thing, Boorman is a must follow! He was one of my first follows when I first began learning about markets almost three years ago and I can honestly say his insights have been invaluable. Whether you’re looking for thoughts on position sizing and portfolio management, or for stocks setting up for big moves, Jon’s stream is the place to be. Also, if you happen to catch his streams on Periscope you can witness him crushing the music game as well!

Greg Harmon @HarmonGreg – If you’re interested in incorporating options into your process, Greg Harmon is the guy to follow. He’s consistently sharing great charts and market analysis for a variety of asset classes from around the world. Greg is always looking to utilize options in a way to manage risk and express his market views in a more capital-efficient way, which offers a nice change of perspective from those simply trading the underlying.

Ivaylo Ivanov @Ivanhoff – Whether it is interesting charts or setups, quotes and insights from the best market participants, or just quick comments or analysis of a particular market or stock, Ivan’s shares are always timely and insightful. I find myself constantly referring to his stream for stocks making moves that I may have missed during my own analysis, as well as to gain a perspective on where the momentum in the market is.

There are a lot more great follows on the stream, but these are a few of my favorites. Check out the full list of people I follow on StockTwits and build your own curated list to help you navigate financial markets and accelerate your learning process.

Mean Reversion In Copper Potentially Offers 15% Upside

The presence of flat 200 day moving averages throughout many of the US Stock Market Indices and sectors, combined with a few other factors, is causing me to maintain a neutral / bearish stance toward equities for the time being. Luckily, as a technician I can take advantage of opportunities in other non-correlated liquid asset classes when I’d prefer to avoid equity exposure on the long side.

That being said, Copper looks good on the long side for a number of reasons.

  1. Copper has no correlation to the S&P 500, which is great given my view on equities at the moment.
  2. Commercial hedgers are net long and getting longer, with their position slowly creeping its way back toward all-time highs.
  3.  In terms of public sentiment, pessimism is near levels only registered a few times over the past few years, levels not exceeded since late 2001.
  4. Seasonality is pretty neutral into year end. While not a major tailwind, it’s good to be aware that history would suggest it shouldn’t be a headwind for higher prices going forward. If prices do manage to gain traction though, it’s important to notice that Jan-April is the best 4 month period of the year for Copper.
  5. While still broken structurally, Copper has met my downside price target from a tactical perspective, thus opening the door for the possibility of a mean reversion / counter-trend trade.

Overall, this backdrop for prices looks like it has the potential to support a counter-trend rally, but let’s take a look at what prices are indicating.

From a structural perspective, Copper has been in a downtrend for years, but prices really began accelerating lower once long term support near 3.00 was broken last year. My structural downside target is near the ’09 lows at the 161.8% extension of the 2010-2011 rally, but prices have recently gotten really extended from the major downtrend lines that have helped define this decline. Additionally, momentum has diverged positively at these recent lows as prices have stabilized for a few weeks, suggesting that prices may retrace from here.

chart Continue reading