Wednesday, August 29, 2007

Palladin looks to correct more

Above: Palladin Mining (PDN-TSE) another high quality name now down almost 50% from the absolute highs… one day, this will be an outstanding repurchase candidate, and one day this stock will soar again to dwarf the highs seen in the first half of 2007… long term investors, no worries, it's just a question of following the stock down and letting it tell us when the bottom has been seen.

So what’s next for Uranium and Uranium Miners? In our view, both Uranium and Uranium stocks are in a primary degree correction, meaning a correction that can last many months. In addition, with the prospect of a global recession, if not an outright depression looming directly ahead, we feel that it is best to use a cautious approach and not try to pick a final low. To help clarify this point, on all of the updated charts shown above, the “AFTER” charts through today’s trading we include the three most important moving averages for each stock, the 50 day, the 100 day, and the 200 day. In all cases, the moving averages have rolled over and experienced downside cross-overs, with the slow poke of the group, the 200 day moving average in most cases just turning down. That is a sign that it could still be very early in the downtrend, as normally, declining markets tend to see the 200 day moving average trending down week after week after week after week, until eventually, the darn thing starts to flatten out.

As I write this, I am reminded of Stan Weinstein and his terrific stage analysis, wherein these stocks would all be in stage four declines. For those of you who like to read up on Technical Analysis, Stan is both a gentleman and a scholar, and a number of years ago turned out a first rate tome entitled, “Stan Weinstein’s - Secrets for Profiting in Bull and Bear Markets” -- still a Barbera, “House Favorite.”

Putting a slightly different spin on the Uranium Sector, I note that my GST Uranium Index (which includes about a dozen names among the likes of Cameco, Denison, Strathmore, Paladin, Pinetree, Crosshair, JNR Resources, Mega Uranium, Laramide, UEX Corp., Fronteer Development and SXR Uranium) is now down 51.02% from its April 10th, 2007 peak. Now there are those that would say that’s the entire bear market. Yet, what is common in situations like this is for prices to retrace a proportional amount in relation to the advance which came before. In the case of the Uranium stocks, the percentage increase seen in the last few years is measured in the thousands of percents. When viewed on a semi-logarithmic scale, we note that to date, the very steep percentage decline off the high has only approached a minimum .236 Fibonacci retracement. More common, would be a .382 fibonacci retracement which could carry the index even lower toward the 420 level, with index closing today at a reading of 902.50.

Ok, we can hear the cringe, and readers should understand that while that type of move is possible, it may not in fact develop. What we are trying to point out is even if the entire sector were to be cut in half again from present levels, it would still fall into a clear cut “Wave 2” type of outcome, and would not change the very long term secular bull market view. Admittedly, a move down to the low 400 level on this index would be an unbearable amount of pain, but it is possible within the context of a major crash in the global markets that readings like that could be seen in the months ahead.

For now, the best approach is to be a trend follower and recognize that the trend is now definitively down. Until we see the kind of basing action that would suggest momentum divergences and downside deceleration, readers are advised to remain cautious and ideally on the sidelines and out of harm's way with regard to this group. In many cases, corrective Wave Two patterns traces out an A-B-C structure, within which it is possible that Intermediate Wave A of Primary Wave (2) has just recently bottomed. In this vein, a counter-trend “B” Wave advance could provide those holding these stocks with a loss, the opportunity to reduce the loss into strength and then stand aside as prices move down in Wave C, and into a more important final low.

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