Thursday, March 22, 2007

Time to Get Back Into Uranium?

The Answer: Not yet, but......

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The Uranium Index closed at 23900 today, inching ever so closer to the key resistance level of 24100. Not every stock in my index looks bullish, but an awful lot of them look like they are waiting for something, a trigger, or a catalyst, what have you.

Here is the landscape:

On Monday, UxC will report the U3O8 spot price (but only to subscribing members). What are the chances that the spot price will actually drop, given that it has never dropped in the past, oh, 6 freakin' years? Of course, this Monday could be the day where it actually starts dropping in price. There can be only 3 outcomes in the spot prices - they go down, stay flat, or go up. Assuming an equally distributed probability for each of the 3 scenarios, then that means the probability of spot prices actually going down is 33%. In my opinion, I think the probability is significantly lower than that, say more like 20%.
So, I think the safest scenario is to assume no change in spot prices on Monday. That means if the index is to breakout (above the key resistance level of 24100), it will have to do so based on pure technicals.

Forsys Metals (TSX: FSY), tipped its hand and showed what could happen during a sector wide breakout. On essentially no news (I do not count the news of COMPLETION of the Ancash acquisition as significant news), it moved +$1.50 in about 3 days, good for 22%. I'm embarrassed to admit that I sold @7.89, because even I could not believe my eyes as I watched what it did for the past two days. I won't even bother posting the chart, because I sold out sooo soon. Anyways, what is interesting about Forsys Metals is that it was going through a volatilty squeeze, and broke out of it in a big way in the past two days.

Other stocks that are currently in a similar volatility squeeze (as identified by the arrows in the above charts):

These stocks in particular I like because they are above their respective trendlines. Also, using today's low as a stop loss presents a low risk entry opportunity for the above list of uranium stocks. I will start accumulating the above stocks on any intraday pullbacks.

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