Uranium Remains Commodities King Of The Mountain – Week In Review Part 8B
Excelsior Prosperity w/ Shad Marquitz – 02-10-2024
My intention was to get a commodities and resource stocks update out to subscribers earlier this week as the Part 8B of last weeks update [Part 8A was all macroeconomic movers], but alas it shifted to this Saturday update. Not that it really mattered, as most of the trends in commodities and the related stocks have simply stayed in motion over the last few weeks.
Additionally, I just can’t fit all the commodities I wanted to cover into this Part 8B due to length constraints, so it will strictly be a Uranium sector update as it has remained the “King Of The Mountain” with regards to commodities and resource stocks over the last year. Heck, I can’t even fit everything I want to say about uranium in this one but that’s the focus for today.
—> Stay tuned though for Part 8C that will be coming out tomorrow featuring oil, natural gas, gold, silver, copper, and nickel and other thoughts on the resource stock setups.
Uranium and the U-Stocks:
How can we not kick things off with the star of the commodities show over the last year?
Uranium and the uranium stocks have been on a blistering move higher for the last 4 years, coming out of the pandemic crash lows, and they have really gained more energy (pardon the pun) since last July. How high can things go? Nobody really knows, but let’s look at the charts and consider a few of the fundamental factors.
There are a bevvy of bullish fundamental factors supporting the Uranium spot price, which has seen it grow in price the last few years, and vaulted it over the $100 mark in recent weeks:
1) Less secondary supply
- For many years in 2010’s we had the continued overhang from Megatons to Megawatts program, dismantling Russian warheads to provide enriched uranium fuels to reactors and utility companies
- Russian centrifuges kept spinning and squeezing out extra uranium, capitalizing on the lower price environment by selling extra uranium on the spot market
- Japan was dumping extra uranium on the market for years, as a significant portion of their nuclear reactor fleet was offline post Fukushima incident
Those secondary supply factors are no longer pushing the same quantities of nuclear fuel out into the markets in the 2020’s.
2) The spot market supply was mopped up over the last few years
- The Sprott Physical Uranium Trust (U-UN.TO) (SRUUF), Yellowcake Plc (YCA.L) (YLLXF), and the Kazakhstan physical uranium fund (ANU Energy OEIC Limited) mopped up much of the available supply on the open spot market, along with a few commodities funds and traders.
- A half dozen developers and near term producers (enCore, UEC, Denison, Energy Fuels, Ur-Energy, Boss Energy, etc..) soaked up even more U308 pounds off the spot market, buying in anticipation of a higher contracting price cycle.
3) New reactors builds, planned and proposed reactor builds, along with reactor life extensions have underpinned a steadily growing demand picture
4) Small Modular Reactors (SMRs) are gaining traction in the minds of investors, businesses, and governments.
5) The longer-term off-take contracting cycle finally is well underway, moving the longer duration term pricing higher as well. This is what companies and investors have really been waiting for, as most of the production historically comes from these kind of transactions, and not from the spot market.
6) NAC Kazatomprom JSC [producer of about 40% of global uranium supply] has messaged they are going to miss guidance for 2024, 2025, and likely 2026. This means lower supply on the global stage. Pair that with the lower production from Cameco, and out of Niger with French producer Orano, and we simply are seeing less and less of a path forward to supply the growing demand picture over the next few years.
There is much more I could get into with changing narratives and outlooks on the nuclear energy sector and future uranium demand, but I’m not going to belabor the macro thesis any further here. I want to get to the uranium equities that most people reading are invested in, or considering investing in. However, for those that want to take a deeper dive into this sector, I’d recommend a recent interview with my buddy Justin Huhn. He runs Uranium Insider, and is one of the more well-informed public guys commenting in this space.
Justin Huhn (Uranium Insider) on Where Uranium Price is Going in 2024
Bloor Street Capital – Jan 31, 2024
So now let’s look at the Uranium Stocks (U-Stocks):
My preferred ETF for tracking the uranium sector has been the Sprott Funds Uranium Mining ETF (URNM), due to it’s positioning in the big boys - Sprott Physical Uranium Trust is a good proxy for uranium pricing [14.23% weighting], NAC Kazatomprom JSC biggest global player [13.96% weighting], Cameco (largest publicly traded North American producer) [13.07% weighting], CGN Mining Co. Ltd. – a robust Chinese producer (6.12% weighting) along with 33 other uranium equities. This gives investors a solid vehicle to follow and invest in with a great cross section of the uranium sector. Additionally, I see this ETF as superior to (URA) in many ways, because it removes a lot of the unrelated nuclear and manufacturing companies that have clogged up that ETF for years, at least for people wanting to track just the uranium sector.
Here is a 4-year chart of URNM:
Note the move from it’s 2020 pandemic crash low of $6.87 to the recent high at $58.96. That is over an 850% gain in just the last 4 years. We keep hearing people say nonsensical things like “the uranium stocks haven’t really outperformed compared to the moves in uranium.” What??
This chart and many other charts show that is simply not true as during that time the uranium price went from around $20 to $100 which is about a 5x move, not an 8.5X move, and as highlighted in a prior article I wrote here for subscribers, there are a number of quality uranium stocks that went up 10x – 30x at points during that time period. That is clear outperformance any way you slice it, so take what you hear many “resource experts” stating in interviews with a grain of salt… or yellowcake.
Again, looking at URNM, on that 4-year daily chart above, pricing is still well above the 200-day exponential moving average (EMA), and has been riding up that 50-day EMA as support since the next wave higher got underway in July of 2023. Currently the 50-day EMA is at $51.40, and it does look like pricing has been retreating lower from the recent peak at $58.96, to likely meet up with this level once again for support. Also, despite the big move higher for such a long time, things have cooled a bit recently and both the RSI (above price chart) and CCI (below price chart) are in neutral territory… so not overbought or oversold.
Here is a shorter-duration (URNM) chart if you want to see things a bit more zoomed in:
Alright, now let’s looks at the weekly URNM chart:
Many have stated that the uranium equities need to cool off after such a big run. As stated up above, they really aren’t overbought from a strength or momentum standpoint, and could keep ripping. However, let’s look at the bearish thesis for where support could come in on a corrective move. On the weekly chart, yes pricing is well above the 50-week and 200-week EMAs, closing on Friday at $53.82. The 50-week EMA is currently at $42.01, and the 200-week EMA is currently at $30.27, but they are both sloping upwards and will likely keep rising over time, even if URNM channels sideways for a while, so we’ll keep tabs on the 50-week, but it hasn’t been touched since last summer, so until this trend changes, I’m looking to see pricing staying well above it. If there was a dip down to meet the 50-week, then depending on other factors, that is where I'd add back to some of the U-stock positions I’ve trimmed by 20%-30% in recent weeks.
Sometimes when I discuss ringing the register to pull some profits along the way higher, it raises ire in the die-hard believers, because they feel it threatens their thesis of rocket ships to the moon…. So let me clarify something here.
Look, I’m about as bullish on this sector as anybody out there, and have been investing in the uranium equites since 2010 (so going on 14 years now). I was pounding the table bullish on the sector back when uranium pounds had dropped below $18 in the $17s in late 2016 and again in late 2017, and was buying all through that period through the pandemic crash of 2020. When it was still a contrarian investment.
Personally, I still have 7 uranium positions in place with 70%-80% of the core positions left. [Actually, I sold Uranium Royalty Corp recently to rotate into Peninsula Energy, as I saw a few catalysts for 2024 and 2025 that are a bit more pressing, so I’m still building up that position]. The point being, I’m a fan of this sector and have been for years (before it was cool or en vogue), because the fundamentals for nuclear energy, and the supply/demand mismatches in uranium are so very compelling.
Having said that, nothing moves up or down in a straight line. Also, at this point, as Rick Rule has said in about a half-dozen recent interviews, “the easy money has been made in uranium at this point.” It absolutely has, so nothing wrong with harvesting some well-earned gains along the journey, and this doesn’t mean, one isn’t still bullish in the medium to longer-term. If there are more pullbacks, they’ll be spots to accumulate more, and it would not shock me to see things cool off for a little while in the months to come. That would actually be good news for those looking to add to their positions.
Along this line of thinking, here is a recent interview that we conducted with Nick Hodge over at the KE Report last week, where we get into the uranium sector (again), and pointed out that one can still take profits along the way, while remaining bullish the larger trend.
Nick Hodge – Improving Macro, Opportunities In US Equities, The Uranium Sector, And Copper Stocks
Feb 7, 2024 (this link should take listeners to the 9 min:21 sec mark on Uranium)
One of the stocks I pulled a little more profits in last week was Uranium Energy Corp (UEC), because it looked like it had really ripped so much that it may want to cool off a bit, where I’ll likely add some back. If it doesn’t ever pull back… then I’m fine to keep riding the position I have in place. For the sake of those reading, I’ll lay out my thesis for doing what I did… and again, this is NOT investment advice… just sharing my perspective.
UEC has had one hell of a great run from $0.35 in March of 2020 to a recent peak of $8.34 to a new all-time high. That almost a 24 bagger (2,382% gain) in just the last 4 years. It’s been essentially a 4-bagger in just the last year from it’s low last spring of $2.30. On the daily chart it looks like it could come back down to the 50-day EMA of $7.09, and so I sold some at $7.74. It closed the week at $7.71. If it got back down near $7 then I’d likely add a little bit.
In a discussion this last week with active trader T.G. Watkins, Director of Stocks at Simpler Trading and Editor of the Profit Pilot website, we discussed a few different sectors, but even he (as a generalist) was noting the big moves higher in the uranium equities. He mentioned he doesn’t see them anywhere near done with the run, which is very encouraging. I went on to press him on (UEC) as an individual stock though, and we discussed the 50-day MA as a reasonable area for a pullback into support
TG Watkins - How To Play These Uptrends: AI Stocks, Uranium and UEC, Transports, Industrial Stocks
Feb 7, 2024 (this link should take listeners to the 9 min : 06 second mark in the discussion)
I really appreciated T.G. Watkins overall bullish outlook on the U-Stocks (especially from an agnostic generalist trader), and it bodes well for the medium-term. However, when looking at the weekly chart in UEC, it is what really gave me a moment of pause and encouraged me to at least lighten the load a bit. There is a pretty big spread between where it closed the week at $7.71 and the 50-week EMA (currently at $5.29), and even more so with the 200-week EMA (currently at $3.60). Additionally, those alternating weekly candles are forming a congestion zone and sideways price range, and the weekly RSI has been pretty overbought.
To be clear, I’m not saying UEC has to correct anywhere down near those levels, but it would be unwise to rule out that a larger sector pullback could bring the 50-week EMA into play at one point. The good news is that the EMAs are both sloping higher and will continue to rise week after week, but if we did ever see a sharp decline in the U-stocks, that 50-week area would be a level I’d “back up the truck” in adding to many uranium equities. It is easy to get carried away with bullish narratives and emotions when trading in a solid bull market, so I only bring in this stock and weekly chart into the discussion to look at the move through a longer-timeframe technical lens. Can it just keep ripping higher regardless? Of course, but strategies are more important than predictions. I want a strategy for trimming on the rips and buying on the dips.
I’m also not beating up on UEC either, as I like the company fundamentals, am still a current shareholder, and still have a solid position in it. I’m just sayin’…..
Another company I hold in my portfolio is enCore Energy (EU), and I find it fascinating to watch as it approaches it’s all-time high from 2021 of $5.40, closing this last week at $4.77. It isn’t overbought yet on the RSI, and considering it had more catching up to do to break out to new all-time high, it seems within the realm of reason that it may just have the juice to do so.
(EU) enCore Energy is currently in production in South Texas at Rosita (as of November of 2023), and have planned production from Alta Mesa for later in 2024 and ramping up into next year. The team at enCore couldn’t have timed this cycle any better, than to be in production ramp up in tandem with uranium pricing spiking higher and higher. As a result, they do have the wind in their sails heading in this uranium bull market, and have all the ingredients to also break out to new all-time highs like some of their peers.
I actually have a lot more to say in further updates about some of the other uranium stocks in my portfolio like Energy Fuels (UUUU) (EFR.TO), Denison Mines (DNN) (DML.TO), NexGen Energy (NXE) (NXE.TO), Ur-Energy (URG) (URE.TO), Peninsula Energy (PEN.AX) (PENMF), and my stake in the Sprott Junior Uranium Miners ETF (URNJ) [which is a fantastic junior ETF that actually did strip out the big boys and actually focused on selecting the quality junior names in the space… what a novel concept… and other ETF managers should take note].
I’ll leave you all with a quick point on the Denison Mines (DNN) daily chart. Recently it just eclipsed the 2021 high of $2.14 by an entire penny… putting in a price of $2.15. Now it’s pulled back since then to close on Friday at $2.01, but technically that was higher high. What we’d want to see now, is a decisive weekly close above this level to show some higher conviction, but still a nice setup in the works. Hopefully that gives some confidence to those positioned in other uranium equities that have yet to eclipse their 2021 or 2022 prior highs.
Thanks for reading and stay tuned for the upcoming deeper dive into a number of other commodities in Part 8C.
Ever upward!
- Shad