Chart of the Week Glows in the Dark

This column originally ran on Uncommon Wisdom Daily on March 17, 2017.

Gosh, not very long ago, it sure seemed like the uranium market was dead. 2016 saw uranium prices crumble to 12-year lows. Today, prices are off that bottom, but only a little.

It’s so danged bad that Kazakhstan, source of 30% of the world’s uranium supply, is cutting its own production by 10%.

Nobody undercuts the Kazakhs on price, so that’s the equivalent of a B-movie atomic-powered monster doing a face-plant. Game over, man!

Meanwhile, the guys who run uranium mining companies have been promising me that prices would rally — any week now — for three years. THREE. LONG. YEARS.

Yeah, you could say I’m a bit disgusted with the uranium industry.

Well, lo and behold. That atomic-powered monster is rising from the rubble and coming back for a sequel. Take a look at a chart of the Global X Uranium ETF (URA).

This chart shows that URA rallied big since November. In February, it started pulling back. That consolidation brought it back to nearly a 50% retracement of the big move.

If you read JR Crooks’ fine stuff, you know that 50% is a common Fibonacci retracement. It’s often tested before a stock or fund takes off again.

Now, URA has clawed its way back above its 50-day simple moving average. This can be seen as a dividing line between bullish and bearish movements.

Finally, on the bottom of the chart, I’m using a momentum indicator called the "Force Index." It’s one of my favorites.

Here’s why: Just like in Star Wars, you want someone who is strong in the Force. URA’s Force Index just switched from bearish to bullish — from the Dark Side to the Light Side, if you will. Momentum is with the bulls on this one.

So what is the URA ETF anyway? This is a basket of leading uranium producers and explorers, including Cameco Corp. (CCJ), NexGen Energy (NXE), Uranium Energy Corp (UEC) and 23 more. The URA even has the Uranium Participation Corp. (U) which holds physical uranium hexafluoride gas, among its components.

That’s a glow-in-the-dark lineup.

Now, you could buy one of those individual miners. Heck, I do it. But the beauty of the URA is you get plenty of upside without single-stock risk.

What am I talking about? Well, do you want to see a picture of a heart attack on the trading floor? Let me introduce you to Cameco, North America’s biggest uranium producer …

You can see that in January, Cameco suffered a one-day, 18.5% drop. It recovered most of that. But then it careened into a 19.5% drop. Again it recovered. Then it went into a "Slope of Nope."

By that, I mean, "You gonna buy a stock sloping like that?"

"Nope."

Now, this is not Cameco’s fault. Some events are beyond its control. Japan suddenly decided it was going to break long-term uranium supply contracts. Ding-dangity dang it!

But at this point, if you’re trading Cameco, the odds are better than average that you’re a masochist.

Cameco is a well-run company, and I’m sure it will be a good buy once it looks like it will put its troubles behind it.

Now go back to that chart of URA. Sure, it had a bumpy start to 2017. The whole industry was riding like an old Ford with bad shocks. But URA’s ride was much smoother than the coronary special that Cameco went through. And all the extra it charges is a 0.7% annual expense fee.

Do the fundamentals in uranium support the price action in URA? No. Not yet. But as often is the case, stocks can lead the news.

Next week, I’ll show you an interview I filmed at the world’s top mining conference with the CEO of a uranium company. He talks about the industry generally. He strongly believes prices are about to ramp up.

That’s what we may be seeing priced into URA right now.

Sure, I’m disappointed with how uranium has acted these last three years. But you can’t let emotion get in the way of trades. And now, it sure looks like that Atomic Monster is rearing its ugly head.

Pass the popcorn. This could be fun.

All the best,

Sean

See the original article at Uncommon Wisdom Daily