After six long years, Uranium investors are beginning to salivate. It feels like their time has come, and they could very well be right. While fundamentals and nuclear policy are definitely important factors, I'll leave it to other amazing seeking alpha contributors to detail those potential tailwinds.
Instead, I'm going to take a deep dive into the technical picture of the Global X Uranium ETF (NYSEARCA:URA) and why I believe the next up leg has begun.
Dissecting The Daily Chart
When it comes to technical analysis, there is a lot going on on the daily chart that's indicating that we may be ready to rocket higher yet again. Let's take a look at a few things I'm currently seeing.
Significant Support Has Held
If you look back to October, 2015 and April, 2016 you'll notice that the level just above $16 per share has capped any move higher. We finally broke above this level in January, 2017 only to stall just above $17 per share... a level that proved significant in August, 2015:
On Friday, February 24th price tested the key $16 level and formed a hammer candlestick pattern. This is significant.
Given the importance of the level we bounced from on Friday, the massive volume this was done on, and the psychology behind the hammer candlestick formation, it's a lot of great evidence that a short-term bottom is in place.
From the linked article above:
Hammers signal a capitulation by sellers to form a bottom accompanied by a price rise, to indicate a potential reversal in price direction. Hammers are most effective when they are preceded by at least three or more consecutive declining candles. Declining candles are indicated with lower low tails. This means prices reach a lower price than the low of the prior candle period. This illustrates the continuation of fear and selling pressure by participants feeling the pain of declining prices. Eventually, the pain becomes too great and forces the remaining sellers to panic out of their positions in a final selling frenzy, indicated by the lowest price being reached, followed by a quick rebound from the lowest price to close the candlestick with a small body.
But there's more support than just our hammer candlestick and the significance of the $16.15 price per share.
Moving Average Support
The 50-day simple moving average (SMA) is currently trending at about $15.92 as of February 27th. Obviously that's just below our low from Friday of $16.15.
I love watching SMA's for support and resistance levels, so this is just another piece of evidence that strengthens the case for further bullish price action.
But there's more.
Double Bottom and Hidden Bullish Divergence
As mentioned, Friday's low was $16.15; The low on February 2nd was also $16.15. This marks a potential double bottom for URA.
But beyond that, we see RSI actually made a lower low even though price did not do the same. You can see this in my chart, depicted with blue lines.
Hidden divergence can be tough to spot, but this image sums it up well:
Source: Trading Setups Review
Although price did not make a higher low (remember, we put in a double bottom), the hidden divergence is still valid. Our oscillator, in this case RSI, made a lower low without price making a lower low. That's the key.
Simple Moving Averages Are Hinting At Trend Reversal
Finally, the SMA's on our chart are indicating we could very well be seeing a trend reversal. The 100-day SMA is now trading above the 200-day SMA.
This means we're in a formation where the 50-day is above the 100-day SMA an the 100-day SMA is above the 200-day SMA. All are pointing higher. This is what I like to call a "purely aligned" SMA formation. It's the sign of a bullish trend (bearish if they were pointing lower).
To really build confidence in this bullish trend I'd like to see the weekly SMA's start crossing over too:
The 50-week SMA is still below the 100-week SMA, but it's curling up. One next logical target for our next leg higher could be the 200-week SMA which currently trends at just over $22 per share.
At that point I'd hope to see some consolidation while the 50-week SMA heads higher through the 100-week SMA.
Conclusion
Uranium investors have been patient for some six years, waiting for their bull to return. It may very well be here. URA has held significant support and there is further evidence that we're ready to run higher yet again. That said, investors need to continue to stay patient if we are indeed in a new bull market for Uranium. We will continue seeing bouts of consolidation as we do in any trending market.
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SwingTradeLife
I've been investing and trading for over fifteen years. After trading for a hedge fund in Chicago for two years I decided to go out on my own. I now trade for a living.
Analyst’s Disclosure: I am/we are long URA, URRE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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