It’s no secret that URA has been a serial underperformer versus the S&P 500 and many other asset classes, but the chart below shows a falling wedge developing in the ratio of URA/SPX over the past year, which could help turn that trend around in the short-term.
Momentum recently diverged positively as the ratio tested the lower trendline drawn from the February lows and is beginning to turn higher. The target in this ratio is up toward the downtrend line and prior highs near 8.0. and the risk is at the recent lows of 6.3.
I think the risk/reward is more attractive on an absolute basis, but I wanted to provide an additional viewpoint for those who like to approach the market from a market-neutral perspective.
Uraniam ETF (URA) / S&P 500 Ratio Performance Chart
The Bottom Line: The Uranium ETF has certainly been one of the worst performing sector ETFs in the world for years, but the weight of evidence suggests that this market may be due for some mean reversion. It may not be discussed as often as some of the more popular sector ETFs, or be as liquid, but as market participants we can still take advantage of the opportunities in this market as they present themselves.
From a risk management perspective I only want to be long this market above 13.50 on a closing basis, which represents the September lows. I ultimately think this breakout will continue to develop over the next few weeks and months, with prices testing the 38.2% retracement of the YTD decline and 200 day moving average near 17. With that being said, I do expect some resistance near 15.25-15.50. This rally will not occur in a straight line, but let’s take it one day at a time and see what the market does from here.
Overall, with a price target of 17, and a stop below 13.50, the risk/reward from current levels is roughly 6:1 and can reach much higher levels depending on where you choose to enter / exit this trade. Given the weight of evidence, I think we see a 20% rally in this market over the next few months.
As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.
Twitter: @BruniCharting
The author has a long position in the mentioned securities (URA) at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
