Cameco Corp. looks prepared to retest support

Sep 24th, 2012 – Comment

What is of concern is the appearance of a symmetrical triangle which fails to provide confirmation of a trend.


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Hi Lou,

So what’s the deal with Cameco? I bought this stock at $25, just after the Japan tsunami when the stock was trading from a high of $40. So far catching this falling knife has not worked.

Is there a bounce back on the horizon?

Scarred in Cambridge.

 

Hey Scarred,

Thanks for the assignment. Cameco Corp.(CCO TSX) has been pinned to the mat as a results of the Fukushima disaster the transpired in March of 2011. A number of countries have been backing away from atomic energy as a results and that has put pressure on the sector globally. CCO has missed its earnings forecast in five of the last eight quarters which generally will not move the price of a stock higher. The company is scheduled to report Q3 in November so be sure to pencil that time frame into your calendar so you are prepared.

On April 17, 2012 J.P. Morgan published a report that forecast a meaningful improvement in uranium prices through 2014 as a supply deficit arising from project delays across the sector and reductions in secondary supplies. Your decision to buy at $25.00 after the first round of selling after Fukushima is a classic case of anticipating the bottom instead of confirming it. As a result you have plumbed new depths with your hard earned capital. The best outcome for you has been that you bought a great company and have seen some recovery from the lows but not enough to get you even on your position.

An examination of the the charts will surface a number of lessons to be learned now that you have paid your tuition to the market.

 

 

The three- year chart clearly outlines the downtrend that formed after the problems in Japan. The resistance that formed along the trend line and the 50-day moving average from March 2011 through late December of 2011 was a warning sign that getting in early would only result in pain and suffering. The lift off of $17.50 in late December and the run to a 52-week high at $26.43 on February 22, 2012 indicated that the stock had finally found a bottom. Currently the shares are trading in a range bound pattern with support at about $20.00 and resistance near $22.50.

 

 

 

 

 

The six- month chart provides a close- up of the range bound trading that has provided opportunities for investors who have the skills to read the markings on the trail and find entry and exit points. What is of concern is the appearance of a symmetrical triangle which fails to provide confirmation of a trend. In addition the MACD and RSI are both heading lower suggesting a retest of support in the $20.00 range. Also worth noting is the 50-day moving average about to cross below the 200-day moving average

Given that you are underwater on your core position you should consider taking a tax loss now then trading for profits in a effort to break-even.

Make it a profitable day and happy capitalism!

 

 

 

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