Cameco Corp. – Invalidation of the Breakout
At the beginning of this week, we witnessed a great success that turned into a failure quickly. What are the technical implications for the bulls?
Despite the tremendous success of shaping a fresh multi-year high, the bulls have failed to maintain their gains. What are the technical implications of this? What can we expect in the upcoming sessions?
I invite you to today's analysis, where you will find the answers to these questions.
Let’s start todays analyze with the quote from the last article on Cameco Corp.:
(…) the stocks of the world's largest publicly traded uranium company have (…) reached significant resistance based on the June 2007 peak.
As prices rose, the RSI moved into its overbought area, which in both 2007, 2021, and March 2022 cases preceded a correction of the earlier northward march. Very high levels of CCI were also a motivating factor for the bears to be active.
In addition, the Stochastic Oscillator has risen to its highest level since February 2011! When we look at the chart, we see that this was the moment before the very strong market reversal and sell-off, (…)
The first thing that catches the eye on the monthly chart is a tiny breakout above the June 2007 peak and a fresh multi-year high of 46.95. Although this was a very bullish signal, the buyers didn’t manage to hold gained levels.
All the above-mentioned technical factors encouraged the bears to act (as expected), which resulted in a reversal and a quite quick invalidation of the earlier breakout, which, in combination with the current position of the indicators, doesn’t bode well for the bulls at the moment.
How did this price action affect the medium-term picture?
Before, we examine the weekly chart, let’s recall what the company's stocks’ situation was like when you read about it before:
(…) the CCJ has risen above the upper border of the blue triangle, and in the not-too-distant future, the bears may want to realize the gains made in the previous months (as a reminder, in this area, the minimum size of the upward movement will be equal to the height of the triangle, which from the point of view of technical analysis may be discouraging to realize profits).
This is especially true if we also take into account the fact that, not far from current levels, the size of the upswing would be equal to the size of the consolidation marked on the daily chart below in orange.
Looking at the charts, we see that the price reached its upside targets as expected in the previous weeks. A fresh multi-month peak hit at the beginning of December encouraged the buyers to take some profits off the table, which translated into a pullback and a comeback to the previously broken upper line of the orange consolidation.
As you see this support in combination with late-Nov. lows encouraged the bulls to climb higher once again, but as mentioned earlier the buyers failed to keep the price above 2007 high for longer.
As a result, the stocks dropped not only under the 2007 peak, but also below the previously broken upper border of the black rising trend channel (marked with dashed lines on the weekly chart), the red rising line and the blue support line based on Nov and Dec lows (seen on the daily chart), which opened the way to lower levels.
Additionally, a significant red candle was formed on a huge volume on Dec. 19, which in combination with the previous white candle created a pro-declining bearish engulfing candlestick pattern, which serves as an additional resistance, which blocks the way back to the north.
Thanks to this drop, the CCI and Stochastic Oscillator generated sell signals (not only on a daily, but also on the weekly basis), which suggests that further deterioration may be just around the corner.
How low could the stocks go in the coming days?
In my opinion, the first downside target for the sellers would be the nearest support zone (marked with blue rectangle) created by the 38.2% Fibonacci retracement (based on the entire Oct.-Dec. upward move), the 50-days moving average, the previously broken Sept. peak and the green rising support line based on the previous lows (the lower border of the green rising trend channel), which together could encourage the bulls to come back to the trading floor and fight with the bears.
At this point, it is worth noting that the CCI and the Stochastic Oscillator dropped to their lowest level since the beginning of Oct. When we take a closer look at the above chart, we can notice that back then a bit lower reading of the indicators preceded a reversal, which in combination with the above-mentioned support area suggests that the space for declines may be limited (at least in the very short term).
Nevertheless, such a scenario would be more likely only if we actually see the bulls’ strength in this area (confirmed e.g. by maintaining a lower border of the green rising trend channel).
What could happen if they fail?
We’ll likely see further deterioration and a test of the next support zone created by the 61.8% Fibonacci retracement reinforced by the upper border of the big green gap (formed on Oct. 31) and the Nov. 7 low.
Summing up, although the stocks hit a fresh multi-year peak, the bulls failed to push the price higher, which triggered a reversal and a correction, which brought the seller many technical allies. Despite recent downward move, the buyers stand a chance of stopping further declines as the first important support zone is just around the corner.
Finishing today's article, I wish all my readers a wonderful holiday season!
See you next week.