One of the most bullish aspects of the uranium miners that I haven’t seen discussed anywhere else is the positive divergence between the miners and the price of uranium that continues to this day. Take a look at the charts of U.TO and URA below and notice how the uranium miners (URA) have put in 3 minor but important higher highs (denoted by the circles on the chart) at the same time the price of uranium (U.TO) was making lower lows. Often this type of action is seen in market bottoms where further declines in the commodity fail to produce lower lows in the commodity producer. This means the shares of the commodity producer have shifted into stronger hands, they are no longer willing to sell even if the underlying commodity continues to decline in price. This is what leads to explosive Stage 2 breakouts because once demand comes back in there is literally no one left to sell, and the stocks start ripping higher.
U.TO took fairly good volume last week doing 3x average weekly volume. The volume in URA was also over 2x average volume on the previous week. The bigger the volume on a Stage 2 breakout the better, and if we continue to see increased volume in these over the next few weeks that’s a good sign.
I took initial positions in UEC, URG, and UUUU to play this potential new Stage 2 breakout in the uranium miners. I’ll be watching the price action as always and using the 30-week moving average as my risk management line and indicator of whether to stay in the trade.
A reader asked me today what I thought of the energy sector and if I would look at it using Stage Analysis. I have been noticing some energy stocks appearing on my stock scans, and that hasn’t happened in quite a long time so that’s a positive. But here’s what I’m not seeing that hasn’t made me want to load up on energy stocks yet:
Large number of energy stocks across the sector breaking out to new highs on big increases in volume
Energy stocks outperforming the S&P 500 and other sectors
Crude oil in an uptrend
Commodities as a group in an uptrend (I tend to use the GCC ETF to view that)
Here’s a longer term chart of XLE. A couple of things to note on this chart. I’d rather see a nice long base here to launch into a new bull market, but all we have so far is a bounce higher from the 2016 bottom. I could see energy stocks basing for a while longer here and digesting the previous bear market. I want to see XLE outperforming the $SPX on the middle section of the chart too, and that’s clearly not the case. If you look at semiconductors or biotech (SMH or XBI) you’ll see the exact opposite of what you see here and that’s why I like those sectors right now.
I actually did recently trade one energy stock WTI because I liked the chart but I didn’t trade it as a sustainable uptrend. Maybe I’ll be wrong and energy stocks have bottomed here but I don’t see that yet in the charts. On this chart of WTI though you can see how we have a nice Stage 1 base that it exploded higher off from on massive volume. But notice how it did the same thing in late 2016 only to turn out to be a fake rally that failed. I wouldn’t be surprised if the same thing happens here unless we see more strength across the sector.
I see the same thing in energy in other commodity sectors like gold stocks. A few stocks breaking out higher but that tends to be the exception more than the rule. That was why I didn’t think the August to September rally in gold was going to lead to a new rally as well, I saw a lot of gold stocks acting terribly when they should have been gearing up for a big move.
In this video I respond to a reader question about using the Stage Analysis Screener to trade stock market indexes. In particular the reader was interested in the TSX, so I focus on that index. The Stage Analysis Screener is very useful for understanding the trend of a market, breadth of an index, and finding leadership sectors and leading stocks.
In this video I discuss the weak breadth that has occurred across the stock market since early March 2017. Weak breadth means that less stocks are participating in a market rally, which means that it’s harder to find a stock that’s outperforming the market. The market so far in 2017 has been led by large cap tech stocks and by the semiconductor industry groups that have been in strong Stage 2 uptrends since the middle of 2016.
In the second part of the video I go over the importance of not chasing overextended stocks that are far away from the 30-week moving average. This can lead to losses and occurs because traders lack discipline to wait for a better buy point after the stock has consolidated for a while.
In this video I take a look at recent action in the uranium and gold sectors and some bullish developments for each sector. I also discuss two stock market sectors that I think could outperform as we continue into 2017.