Uranium – Only for the Bears?
Invalidation of the breakout, daily closure under the trend channel, and 2 gaps.
Can bulls survive in these conditions?
Let’s start today’s analysis with the long-term chart. What happened? More importantly, what didn't happen and what are the consequences?
Looking at the monthly chart, we see that although the bulls managed to push uranium above the two previous peaks (hit in July 2013 and March 2014), which together form the red resistance zone, this victory was only temporary.
They didn’t hold gained levels, which triggered a pullback and an invalidation of the earlier tiny breakout (monthly closure below both mentioned peaks), which doesn’t bode well for higher prices – especially when we factor in visibly lower volume during last month’s upswing (it simply reduces the credibility of the bulls’ strength) and the current position of the monthly indicators.
What impact did this price action have on the medium-term picture? Let’s check the weekly chart to find out.
From this perspective, we can see that the candle formed in mid-Dec. not only took the price above the red resistance zone, but also slightly above the upper border of the orange rectangle.
What does that mean?
Thanks to the December increase, buyers have reached the level of 28.55, which was the minimum size of the move based on leaving the consolidation. You can read more about this in this article published on November 22, 2023:
(…) buyers started to gain strength, consolidating in the area of 24.45-26.99. It was a very good decision, which discouraged the sellers from attacking, which contributed to the next upswing, which in mid-November raised the uranium above consolidation.
What does that mean? From a technical point of view, such price actions usually translate into further increases - at least to the level which corresponds to the height of consolidation. So, for uranium, that would be a minimum of 29.53, which means there's still room for growth.
Taking this fact into account and combining it with the red resistance zone we have an answer as to why the correction of the previous upward movement occurred - the closing of long positions and the realization of previous gains.
Thanks to this price action we received not only the above-mentioned invalidation of the breakout above the previous peaks, but also a red gap created at the beginning of this week (27.69-27.43), which serves as the nearest resistance at the moment of writing these words.
Additionally, when we focus on the weekly indicators, we see that the RSI, the CCI and the Stochastic Oscillator generated sell signals, giving the bears even more reasons to act.
At this point, it is worth mentioning that the RSI generated a sell signal for the first time since October.
What happened back then?
A similar performance in early October was preceded by a slightly larger correction, which pushed prices back to their peak formed on Sept. 6, 2022, which raises the risk of history repeating itself once again in the coming week(s).
Nevertheless, in my opinion, further deterioration would be even more likely if we see a drop below 26.61. Why here? As you see, the price is trading inside the pink consolidation based on the mid-Dec. candlestick and 26.61 is its low and the lower border of the consolidation.
Therefore, a breakdown under the lower line of the formation would likely open the way to lower levels.
How low could uranium go if we see such price action?
The initial downside target would be around 24.67, where the size of the downward move would be equal to the height of the consolidation (do you remember the orange rectangle mentioned at the beginning, which indicated the minimum range of movement after leaving consolidation? Yup, history tends to repeat itself, so it's worth remembering the minimum movement range).
Do the bulls have any allies who could thwart the bears' pro-declining plans? Let's take a look at the daily chart and find out.
The first thing that catches the eye on the above chart is the breakdown under the lower border of the short-term black rising trend channel. Although the breakdown is not confirmed at the moment, all pro bearish factors don’t bode well for improvement.
What do I mean by that?
Firstly, on Dec. 28, uranium opened the day with the red gap (27.78-27.51). although the bulls tried to close it on the following day, they failed, which translated into another red gap (27.69-27.43) created yesterday, which together created an important resistance area and blocked the way to the north in the coming days.
Secondly, the volume, which accompanied yesterday’s candle was significant, which confirms the bears’ involvement in the move.
Thirdly, the sell signals generated by the CCI and the Stochastic Oscillator remain in the card, supporting the sellers and their further actions.
Is there anything that can help the bulls in the coming days?
In my opinion, their last resort is the green gap (26.64-27.04) created on Dec. 21. If this support doesn’t encourage the buyers to act, the test of the nearest support zone (created by the 38.2% Fibonacci retracement based on the entire Oct.-Dec. upward move, the 50-day moving average, the Dec. 7 & Dec. 13 lows) would be very very likely.
Nevertheless, we should keep in mind that the breakdown under the lower border of the rising trend channel has its own consequences. From a technical point of view, such price action could translate into a downward move to at least 25.09, where the size of the downward move would correspond to the height of the channel.
Additionally, this area is supported by the 61.8% Fibonacci retracement, which increases the probability of reversal (or at least slowing down or stopping downward move).
Summing up, although uranium climbed above the major resistance zone, this improvement was very temporary and translated into an invalidation of the earlier tiny breakout, which triggered further deterioration. As a result, the price dropped under the short-term rising trend channel, which in combination with the sell signals (generated not only by the daily indicators, but also weekly indicators) and 2 red price gaps suggests that further declines are very likely – especially if we see a confirmation of the breakdown under the lower line of the channel and a drop below 26.61 (the lower line of the consolidation marked on the weekly chart).
If you’d like to know what the current technical picture of crude oil is or to find out what arguments the bulls have or what allies do the bears have, I encourage you to subscribe to Oil Trading Alerts, where you’ll find the answers to these (and many other) questions.
See you tomorrow.