From the desk of Tom Bruni @BruniCharting
We look at a lot of charts every week, so it’s not surprising that we often come across charts that look “too simple.”
A setup we’ve seen thousands of times or a trend that’s reaffirmed itself time and time again, yet I always find myself being skeptical of a chart that looks textbook in nature.
Today I want to take a look at one of those charts.
Here’s the chart of the Global X Uranium ETF (URA) running back into former support after breaking down from its 3.5-year base to new all-time lows in July. On an absolute basis this thing has been a disaster…and relative to just about everything else it’s lagged for years and years.
With prices approaching where they broke down, the question is do we re-short it and look for a move towards our long-term price objective of 6.85?
Click on chart to enlarge view.
From a process standpoint, this is a trade we take ten times out of ten. We’re trading in the direction of the primary trend, momentum is in a bearish range, relative strength is making new lows, our risk is well-defined, and its risk/reward of 50 cents vs 4-5 dollars is within our acceptable range.
From a personal bias standpoint, I have trouble sticking with trends that have been intact for long periods of time, particularly when the share price begins to approach single digits. The thoughts that begin in my head are:
“Well, maybe this is the start of a longer-term reversal.”
“I should’ve caught the initial breakout entry and have taken some off so I could approach the re-entry from a position of strength.”
“How much longer can this trend persist…it’s not like it’ll go to ZERO.”
On top of that, from an intermarket perspective I’m seeing some interesting counter-trend moves in Steel, Coal, Metals & Mining, etc. on an absolute and relative basis, yet weakness in Uranium and Lithium remains.
That prompts another round of questions: “Are URA and LIT due to play catch up and we’ll start to see that rotation drive them all higher? or is this truly a counter-trend move in the entire space and sticking with the weakest areas on the short side makes sense?”
Ultimately, in this type of situation (or every situation), the process needs to come before my thoughts and feelings. It’s OK for me to have and investigate them, but it’s not okay for them to take precedence over the weight of the evidence which clearly points to sticking with this trend.
It’s the entire reason we have a process, so that we don’t succumb to our emotions and other internal/external influences and make bad decisions.
As long as prices are below 11.75 we want to keep it simple and short URA, because sometimes it really do be THAT simple.
Thanks for reading and let us know if you have any questions!
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