Uranium stocks Rally could be just getting started
- Wednesday’s huge rally looks to be a short—term positive, and getting over SPX 4250 can allow SPX to potentially rally into March FOMC meeting
- Treasury yields should push higher into Fed meeting also, serving as a positive catalyst for Financials
- Uranium might join the craziness seen in other commodities given Sanctions
Wednesday’s sharp reversal looks like a positive which could drive prices higher into March FOMC meeting. S&P rose the largest in nearly two years, while NASDAQ also showed above average gains that helped propel prices higher by more than 3.5%. While huge rallies are normally to be expected within big downtrends, breadth expanded at nearly a 5/1 clip. Make no mistake, this remains a bounce within an existing downtrend, and momentum remains negative on most timeframes. Yet I’ll stick to my recent thoughts that being over 4250 is a good sign for SPX and likely can help this trend extend, with movement back under 4250 turning trends back to negative. Targets initially lie at 4365, then 4432, derived based on Gann’s Square of Nine chart. A higher potential target on a trendline break, however, might carry SPX to 4465-8 which represents a 50% retracement of the decline off January peaks and is important.
Five key reasons why Equities might rally into March FOMC and 3/16-18
First, the cycle projections based on Gann’s Mass Pressure Index I’ve discussed focused on a possible bottom by 3/7-8 and then turn higher into the March Fed meeting.
Second, prices have gotten back up above SPX 4250, which I felt was an important “Line in the Sand”. While it was difficult to press the button and turn positive on the lows Tuesday given such a poor close, Wednesday’s gains helped to exceed minor downtrends, and could allow this rally to extend.
Third, Treasury yields look to have bottomed early this week and are pushing higher. This could allow Equities to follow suit and Financials should benefit from yields rising, which is a possible tailwind for US Equities given that Financials represent the third largest sector within SPX.
Fourth, market breadth expanded by nearly a 5/1 ratio with volume into advancing stocks also expanding by around 3/1 positive. This is a big deal as nearly half the major GICS Level 1 SPX sectors rose over 2% on the day, and breakdowns in areas like SOX, have been recouped.
(On a side note, as has been mentioned recently, short-term breadth indicators had been improving, such as Percentage of SPX stocks above their 20-day moving average (m.a.) which lies at nearly triple the levels it was back in January).
Fifth, sentiment had gotten understandably bearish given recent bad news. While I didn’t see proper evidence of true capitulation, poor retail sentiment likely helped to drive a near—term bottom and would most definitely benefit if the rumors of potential compromise in the geopolitical conflict plays out. (Chart of US 10-Year Treasury Yield is below, which is bullish).
Crude oil dropped a massive 12%+ on Wednesday, yet for traders, this might prove to be “opportunity” This relentless focus on Energy lately is certainly necessary given the volatility and it’s just proper to mention that prices really didn’t fall enough to think a larger top in Crude is in place. My own Elliott projections still show this pullback to have a chance at rallying back, which would benefit short-term traders who seek to buy dips. While my Tuesday comments focused on XLE, OIH being up near short—term resistance, Wednesday’s decline was substantial and caused hourly momentum to turn oversold while daily, weekly momentum is still quite positive. Often, this represents an opportune time to buy for traders seeking to take advantage of near-term weakness.
Uranium Stocks look to benefit given sanctions
From a pure technical perspective, the entire Uranium space got a noticeable lift on Wednesday that caused meaningful technical breakouts which make this area interesting as area for long exposure in the coming weeks.
On Wednesday the media reported that the US Administration is leveling new sanctions on Rosatom, a global top 5 Uranium producer (Rosatom supposedly produces ~30% of the world’s Uranium). Given the enriched Uranium in Russia, my sources from Bloomberg suggested this might have the potential to up-end production globally.
Overall, given the wild swings we’ve seen already in commodities in recent weeks with a near total upheaval in Zinc and Tin, this latest news, which might have a meaningful impact on Uranium production, looks to be having an bullish impact in causing positive breakouts in many of the Uranium plays.
Bottom line, charts of the Global X Uranium ETF (URA) are shown below which has made a very healthy near-term breakout above recent consolidation highs of the last few days. This is a big technical positive in my view, and should help to lift this back to test prior highs and surpass these levels. Overall, I favor gains in Uranium, and there are certainly quite a few ways to play this move. Fundstrat’s own Brian Rauscher has Cameco (CCJ-0.09% ) as one of his top plays as part of his “Brian’s Dunks” portfolio, and this looks to be a liquid stock which should directly benefit if Uranium’s rise continues. CCJ-0.09% , as well as the Uranium ETF, URA, look attractive to me as a way to participate.
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