URRE is one of those stocks I mentioned yesterday that I only see a handful of each year, the stocks that have long term divergences (in this case a positive divergence) that contradict price and eventually, end up moving well above when the divergence first started and we have been tracking it for a while and as you know, recently noticed a positive change in its trading. I mentioned a few examples yesterday like the 2008 top in oil which was negative for several months on the longer term charts as it headed 20% or so higher, then gave up over 80%. The $US Dollar Index did it twice in both the 2008/2009 period and 2010 as well as a number of individual stocks and to a lesser degree some of the C&D trades. One of the most notorious was HOV during the 2000 tech bear market which saw a year of accumulation. As Jesse Livermore said, it was his sitting on his hands that made him money, being right and having the courage of your convictions. HOV went on (and after the tech market, who would have guessed housing would lead the next bull market? Smart money knew) to gain over 2500% over the next 5 years.
Today URRE is doing decent with around a 5% gain, however this isn't what we are looking for with this trade. It does look like URRE has been correcting/consolidating over the last 4-5 days. Remember, stocks don't have to pullback to consolidate, they can do it through price or through time; volume would suggest URRE has been consolidating through time.
As a general concept that I have been pointing out for more then a year, a bullish descending wedge and to a lesser degree, bearish ascending wedges, no longer act like what you will see in Technical Analysis textbook patterns. This is just another example of Wall Street evolving and using Technical Analysis against technical traders who still haven't adapted (which I have pointed out numerous times, makes technical traders predictable and thus Wall Street's actions/reactions more predictable). TA textbooks will often show a descending wedge reaching its apex and then breaking out and promptly retracing the base (in this case around $3.60). However that is not what we see in the real world anymore, now we see a false breakout setting up longs as you can see in the yellow box, a head fake move, followed by a period of usually lateral trade or some sort of base. URRE has been forming more of a "U" shaped base, the days of "V" shaped reversals are pretty much gone.
When I first noticed a change in character in URRE I tried to anchor expectations and said, "I would like to see URRE form a rounding base" (this was before the rounding part of the base started to turn upwards so thus far we have seen what I hoped to see). In December URRE started to make a move to the upside, although ultimately as it is a long position, that is what I want to see, I was a bit concerned it was getting ahead of itself so the pullback was not a bad thing in my view and I asked you to keep your eye on the 22 day moving average and look at the bigger picture rather then the day to day trade. So long as the 22-day continues to round, I am fine with URRE's trade. The pullback from the December move up actually gave the 22 day a better looking rounding pattern.
Looking at a 4-day chart better shows the pattern as well as volume-this is what I was hoping to see.
Here's my Trend Channel set to 3 days, which is the stop I prefer; it held the last move of 800% and captured the bulk of the trend. Although the stop out came at the first red arrow to the left as URRE closed below the highest point of the lower Channel line, there were warnings before that such as the long upper wicks on the candlesticks in the red box, showing resistance and higher prices being rejected, in the yellow box URRE made a lower high, so there were clues and the exit in URRE could have been before the Trend Channel stop out thus retaining more of the gains. The Trend Channel also held the downtrend perfectly, stopping out at the red arrow, but again we had hints before then such as the descending wedge reaching it's apex, 3C accumulation, etc.
As you know, I prefer wide initial stops, they can always be tightened later, I would continue to use the 3-day Trend Channel with a current stop ON A CLOSING BASIS of $.81. The trade needs time to work, once a trend is under way, the stop can be adjusted, but I'd rather take on fewer shares for a wider stop then more shares on a tight stop that is likely to get hit. Besides, you can always add to the trade, averaging up on a winning trade is a winner's strategy.
The daily positive divergence right now is stronger then the last two, the last run produced returns of over 800%.
Here the 60 min chart shows accumulation at the October lows and a current leading positive status.
Although it's nice to see URRE with a decent gain on a day like today, the premise of the trade is much larger. I'm looking for at least a run to $3.60 and given the size of the daily accumulation, I wouldn't be surprised to see much more then that. Just be patient, keep an eye on the rounding base, watch for signs of stage 2 mark up such as a strong breakout from obvious resistance on huge volume to alert the momentum traders who are running volume surge scans all day.
No comments:
Post a Comment