Sector Spotlight on Uranium

Tickers: URA URNM UUUU CCJ DNN LEU NXE UROY UEC

Sector Spotlight features Swing trade Ideas in the Uranium sector as the ESG shock waves ripple through the energy complex.

Purpose

My main goal of this piece is to make you aware of the the developments in the Nuclear / Uranium sector whos stocks are moving from lower left to upper right on the charts. As a technician, I do not delve into the nuances of the fundamentals of each name. If that is part of your process, by all means, do your analysis. And when you’re done, I encourage you to let me know your findings!

The ESG ( Energy Stops Growing )  Cascade

The ESG cascade has a lot in common with the recent events in Afghanistan. There we closed the airbase and withdrew our military BEFORE we got our citizens and partners out of harm’s way. Most contend that any 10th grader could have told you that approach didn’t make much sense. And they’d be right. What ensued was a chaotic mess.

When it comes to ESG most folks would probably agree that leaving a cleaner world for future generations an admirable goal. Like any goal, first it takes a plan, then methodical execution to achieve it.  But like the debacle in Afghanistan, the powers at be have taken the endpoint goals of ESG and have put them first without laying the groundwork for an orderly transition from carbon-based fuels to renewables and more environmentally friendly solutions.  Now, as folks in Europe, Asia, and to a certain extent here in the ES are finding, the wind doesn’t always blow and the sun doesn’t always shine.  By waging a war on carbon BEFORE proven alternatives are in place, the entire power grid and the security of affordable power has been put at risk. Now the world is scrambling and we’re only in the first half inning of the game.

ESG Cascade Trends

  • Hydro-carbon prices going higher and likely will stay there.
    • Why? Capex starvation and ESG banning investment in dirty hydrocarbons have suppressed supply
    • Coal, NatGas, Oil all going higher.
      • As gasoline prices spike and power bills go through the roof  there will be civil unrest and in certain instances, pitchforks in the streets
      • Governments will use the crisis to justify an even faster transition to renewables. IMO, nothing would delight the Global Climate Crowd more than $125 oil and $20 NatGas as they would use it to justify and even faster transition to Green Energy
      • Those long Coal, NatGas, and Oil should be beneficiaries
  • Nuclear / Uranium
    • Nuclear Energy is a carbon-free source of power
      • It is dawning on green transformation advocates and policymakers alike that its a tough road to a carbon-free world without Nuclear.
    • Nuclear provides reliable base-load power
      • Consumers & Government entities alike are discovering there is no substitute for reliable base-load power.  Adequate base load power is what keeps the lights on 24/7 regardless of whether the wind blows or the sun shines.
    • New Nuclear Reactor Designs; Not your father’s reactor
      • DOE selects 2 innovative reactor designs to prototype   Read more HERE
      • Small Modular Reactors ( SMRs ) are the future of nuclear
        • An example of an SMR would be those found on a nuclear sub or aircraft carrier.
        • The aim of SMR’s is to dramatically improve affordability, flexibility, and safety.
        • Find one example HERE 
        • And another HERE
    •  The Politics of Nuclear  – Attitude Adjustment Underway
    • Price spikes and availability issues with conventional fuels coupled with unreliability of renewables for base load power force a re-think on Nuclear.
      • Finland’s Green Party ends its 40 year war on Nuclear
        • Now The Green Party will lobby the EU to designate Nuclear as a green power source.
        • Read more HERE
      • France’s President Macron flips on nuclear.
        • He was against it before he was for it; Now Macron doubles down on Nuclear.
        • Read more HERE
      • Japan’s incoming Prime Minister is an advocate of nuclear power
        • 9 reactors have been re-started in 2021
        • Read More HERE
      • US Nuclear Power operators are quickly getting permitting for extending the service life of existing reactors to 60-80 years.  Read more HERE
    • Sprott Physical Uranium Trust ( $SRUUF )  is a game changer
      • They have effectively disrupted the supply / demand dynamic and prices are moving higher.
      • Their operations should effectively keep a bid in the commodity.
      • Read more HERE
  • Solar & Wind
    • Watching closely.  When do we find out that governments require solar be installed on all new construction?
    • Oct 13:  Sector makes a power move higher and many issues have broken downtrend resistance
  • EV Commodities
    • The world is too small to supply all the inputs required for the green transformation
    • Copper, Aluminum, Lithium, Tin, Nickel, Cobalt, Rare Earths……….literally there are or will be structural deficits across the board.
      • Check the prices. Most, if not all of these, are at all time highs
    • The permitting and approval process for a new mine takes years before the first yard of soil is moved
    • Once approved, it takes years to bring a new mine into production.
  • EV Cars
    • As it stands now, EV’s are a small part of the overall product mix for the main stream car makers.
    • I have no doubt that at a certain point governments will enact laws to accelerate adoption with a time-line for the phase out of gas-powered cars
      • I’m not talking about a goal; I am talking about laws banning the production and sale of gas-powered cars.
      • CA just banned gas-powered lawn mowers and leaf blowers
    • Watch EV car space. There will be winners and losers
    • Government subsidies will support the industry

 

Uranium Producing Countries

Uranium Mining Trends

Find a deep dive report HERE 

Uranium Stock Relative Rotation

Looking at the 3 week relative rotation graph of these uranium names against the $SPX benchmark you can see the strength of the group. Everything moving or well within the leading quadrant. There is a lot of power and momentum in the group that should support higher prices.  Be wary if you see a clockwise rotation toward the weakening quadrant that would show relative strength and momentum leaving the sector.

Note: You can make your own relative rotation graphs using the tool free which can be found on the Stockcharts.com website.  Although members do have some added functionality I think non-members will find the tool provides everything you need.

Uranium Charts

URA Uranium ETF Weekly

An easy way to play with diverse holdings and reduced single stock risk. Forming a bull flag on the weekly and threatening a breakout.  THe option chain is very liquid and poses not particular problems on that front

URMN  North Shore Uranium ETF

This ETF has a different mix of components but is also more thinly traded than URA.  While certainly tradeable, care will need to be taken on entries and exits because the option spreads are wider than URA. Have patience and use limit orders. Hard to argue with the chart. Price working higher within a well defined channel.

$UROY – Uranium Royalty Trust

This is a Uranium royalty trust.  It invests in a wide variety of mines in exchange for a portion of the proceeds.  While the company does have an option chain, IMO it is not tradable with almost non-existent volume. The good news is that if you have the capital the common stock is cheap enough at roughly $4.50 to simply but it as a call option with no expiration date.

UUUU – Energy Fuels Weekly

Energy Fuels has a liquid option chain and poses no particular issues in that regard.  Price, like many of the other charts in the group, is forming and beginning to emerge from a bull flag on the weekly.

UEC – Uranium Energy Corp Weekly

UEC has a decent option chain. Price is threatening to break out Here.  With the common stock only $3.50 consider simply buying the common stock and let it grind away over time.

CCJ – Cameco Weekly

Grinding higher within a nice rising channel on the weekly. Canadian-based Cameco is one of the world’s largest producers.

LEU – Centrus Energy Weekly

The stock has been making some explosive moves lately. Expect volatility in this name. Kinda tough to get long here at the top of the channel but if you can catch this one on a down week, it is one of the strongest stocks in the group and I would think you’d be rewarded it you were able to catch a nice dip.  THe option chain is very liquid.  No issues.

$NXE – NexGen Energy Weekly

Like most of the charts in the group, working higher within a well-defined channel. At $6 this is another one where you could accumulate common shares and let them grind higher over time without worrying about option decay and expiration. THat decision mostly hinges on the capital you have available.  The option chain is a little light but serviceable.

$DNN – Dennison Mines Daily

Here’s a cheapie.  I often see massive trades on it go off in the option markets so there is definitely a lot of speculation in the name.  But at $1.75, just buy the common.

Conclusion

If you know my work, it is driven off of price action and levels much more than theses and narratives.  That said it is always nice to have a narrative that supports the price action.  I really think this ESG / green transformation push is going to cause massive price dislocations all over the place.  All I see up ahead is hydrocarbons, base metals and uranium going higher.  I think it would be easy to look at the above charts and conclude “I missed the move” but I actually think the move is just getting started.  In the 1970’s commodities and inflation went bananas. We could be in for the same thing over the next decade.  Now, with green transformation mandates beginning to take shape along with governments forcing results, I see an upward price spiral on the green input commodities and spikes in hydrocarbon legacy pricing as those industries face CapEx starvation limiting the supply response.

In the end, trade the charts because price is the final arbiter.  Let’s see how it plays out.

Disclosure.  I am long URA, CCJ, XPEV, copper and oil via call options and futures

 

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