After a surge to above $100, Uranium prices will finally return to $50, right?...
...the question on every fuel buyers mind. After a very robust contracting in 2023, 2024 has been slow to say the least. Are we in for a big second half 2024? Will the $80 spot price level hold?
Bull markets are like auto racing. There are always pit stops. Just because the car isn’t in motion, doesn’t mean the race is over. In the same way, some pit stops are quick, while others change tires, fuel, make steering adjustments… all kind of things. Our previous commentary on this, an article dated 4/26/24, assumed the prior. We were wrong, and that’s good news for shoppers. As it turns out, the market has made a full refuel and may be topping off for another leg up just in time for seasonality boost.
In part 1, we will take a “broad brush” view of the markets latest price retracement. The second and (likely) third installments will include a deep dive in the fundamentals, recent earning and forward guidance of the mid-tier, near term producer plays.
An aside… if you are brand new to the Uranium sector, its fundamental thesis, Heresy Financial produced a nice video 3 years ago that is well worth your time:
Part 1 – Macro Analysis
The SPOT price
From a purely technical perspective the market seems ripe for dip buyers. Retail investors have no access to this market, so we are presenting it entirely as directional conjecture. The fact of the matter is that retail investors in the derivative plays (otherwise known as Uranium equities) watch the spot price and get excited when it goes higher.
Secondly, if you could buy physical uranium and chose to do so based on attractive technical signals alone, you would have purchased roughly in July of 2019 for a price of 24-25 dollars. Here we have a triangle breakout and back-test (higher low). You are sitting on a 237% gain at the current price. Likewise, this chart gave you similar breakout entries of $28 and $48 dollars as well. Even with the current retracements you are growing at a rate of 35-40% per year.
The symmetry of this chart suggests a spot breakout here in early 4Q if not sooner. Spot price is bullish and a tailwind to equities.
It is for this reason that I believe the dip is in at $80. When will nuclear fuel buyers recognize this, and a new wave of contracting commence? Probably late September after the WNA symposium. After all, buyers are well know for panic type behavior in prior bull markets. One might call this behavior “mimetic”. Also, the symposium is in Paris:
Equity Macro
URA - Global X Uranium
Very bullish last 2 weeks in terms of the short term. This is certainly no indication to go “all in”, but at the same time, this could be the cycle low and a higher low on the large time frame.
Major Equities
Cameco – CCJ is as of this article in a net short position relative to uranium supply versus contractual commitments. It is for this reason that we won’t include in the scope of this analysis. The chart presents very similar picture as URA.
Kazatamprom (KAP) – KAP is the largest producer in the world. However, there is some concern they will be able to meet their forward production guidance. The stock is still a great value and pays healthy dividend of around 7%. If we don’t see a uranium breakout soon KAP may be the stock to be holding during this time frame.
Sentiment is in the tank, but the tank also looks fully gassed. How long do we sit in this handle formation? Not an easy question to answer but, based on it’s cup and 50% fib retracement handle, I would venture to guess the time count is roughly half the width of the cup. In other words, any month now. I would be surprised if we don’t break out by early 4Q.
Summary Points
Sentiment is in the tank (contrarian buy signal)
Most of the major charts have experienced a .618 (golden) retracement of their last major move.
Most charts show some type of handle formation of a cup and handle pattern. We are still awaiting confirmation or a breakout to initiate a technical trade.
Seasonality is about to become tailwind (second half of Q3)
$80 spot price seems to have put in a floor and as at key support
There are only two kinds of people in the world, those that have uranium at arm’s reach, and those who need uranium (energy consumers)
Make no mistake, this is a short squeeze in the market fundamentals. For that reason, we will focus on the companies that stand to deliver into this market in the next 24-36 months. In our opinion those are the best risk adjusted opportunities on the board. Though, we will examine many in detail to understand the best value.
…please subscribe to be notified for part 2 and 3 mid-tier equity plays. As of this writing, the plan is:
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