Time to Invest in Uranium and Bonds

It is easy to be brave when far away from danger.

-Aesop, 620-560 BC, Greek Author

Uranium has finally traded past its main down trend line and now it needs to break through this long channel formation. Once it achieves this, it will establish a new up trend line and prices should start to rise. As this is a 3 year chart, this development is pretty significant but it will be even more significant when it breaks out of the current channel formation. A break past 60 for 9 days in a row should at the very least lead to a test of the 90 ranges. Individuals who have no positions in uranium should use all strong pull backs to open up positions in several of the top performing players in this sector. We calculate performance more in terms of relative strength and not just price action; thus trader sshould focus on the stocks with the strongest relative strength.

When uranium moves, it moves very fast, and as the world starts to embrace nuclear power, the main threat facing all these nuclear plants is supplies of Uranium. 50% of the demand is satisfied with above the ground supplies, which means mines are only able to meet 50% of the total demand and we are not taking in all the new plants that that are scheduled to come online on a yearly basis into consideration. If we factor in these new nuclear plants, then current supplies from mines will not even address 50% of the total demand. Once again, the world’s governments are embracing one side of the equation and completely ignoring the other side. Without guaranteed long term uranium supplies, building new nuclear plants is a waste of time. China knows this and that is why it had signed a plethora of deals with nations all over the world in an attempt to ensure that it will have adequate supplies to meet its future demands. At some point in time there is going to be a wild bidding war for Uranium and that will drive the price of uranium mines into the stratosphere.

In terms of Uranium, there are two ways to get into this sector: Market Vectors Nuclear Energy ETF (NLR) and Uranium Participation Corp. (URPTF.PK). Uranium Participation Corp is a direct play on Uranium, while NLR is a play on the nuclear sector.

NLR's fund normally invests at least 80% of total assets in equity securities of U.S. and foreign companies primarily engaged in the nuclear energy business, which derive at least 50% of their total revenues from nuclear energy business.

Uranium Participation Corp will invest a significant portion of its capital in uranium bullion. This provides investors with the ability to indirectly own uranium. Direct possession is generally illegal. This company only trades on the Toronto Stock exchange.

Bonds

In the next 6-12 months, we are looking for bond prices to rise again (interest rates will drop in the process as they trade in the opposite direction to bond prices) and possibly put in new highs but at the very least they will test their recent highs. For this scenario to remain valid bonds should not trade below 112 for more than 3 days in a row, if they do trade below 112 for more than 3 days in a row, the intermediate outcome will most likely change and instead of rallying to new highs bonds will at the most test the lower limit of their old highs. A break past 126 for more than 5 days in a row will be the first sign that bonds are on their way to at least test their old highs.

Market update June 9, 2009.

Bonds have so far managed to stay above the critical level of 112. The main resistance point is still 126, but if bonds can trade past 120 for 3 days in a row, it will be an early signal that a new uptrend is in the works. As there is a pretty decent level of resistance at 120, the first attempt will most likely fail and bonds could retest their lows. If they test their lows again and in the process generate strong new buys, it will be a very bullish signal. A break past 120 will also strengthen the pattern as the current pattern though bullish is still weak.

One positive development is that when bonds tested their lows in June, they appeared to put in what looks like a rare quadruple bottom formation, but more importantly they generated 3 positive divergence signals. All these factors suggest that the momentum is slowly shifting to the upside, but the pattern will only solidify on a break past 120. Investors are getting one last chance to refinance their homes if they cannot sell them and also to close out all bond positions as this will be probably the last time in years, maybe decades that bonds will be trading at such lofty levels.

The long term pattern is projecting a very strong correction and a possible crash in the bond markets, with the possibility that interest rates could soar well past the 18%-21% mark. This means that the long term picture for precious metals is very bright indeed; in the short term, one can expect some volatility in this sector. The next few months will probably provide the last window of opportunity to open up positions in the precious metal's sector at a reasonable price; the bargain stage is now in the past.

A good play on higher bond prices is TLT.

In terms of the Gold sector, GLD and GDX are two possible options.

In the Silver sector, the ETF of choice is SLV.

Risk -- If one has to jump a stream and knows how wide it is, he will not jump. If he doesn't know how wide it is, he'll jump and six times out of ten he'll make it.

-Persian Proverbs, Sayings of Persian Origin

Comments

[whidbey:]

Very interesting. Your technical analysis seems not to mind the administration's energy policies, the rest of the world notwithstanding. The drive to nuclear power is blocked by the OPEC strategy of keeping petrol priced below the amortized total costs of new plants. The short run cost is the enemy of the long run good. And Obama is unaware unless its cap and trade.

I can not see how you will miss on bonds as the equities fall this autumn. Longer run I suspect you have to be right as the debt demands serving and there is but one option I know, taxes being out for the most part unless Congress has a suicidal streak (It may) .

I am still living between a default (the gentle kind - piecemeal) and inflating debt away in a deflationary economy. Would that work? I don't want to know. Thanks, enjoyable.

Jul 23 02:44 PM

[Mad Hedge F...:]

Nice. If we are just on the verge of entering a long term bull market for nuclear energy, as I mentioned in my earlier piece (www.madhedgefundtrader...), then you would have to expect the same for nuclear fuel producers. Last year, the US consumed 55 million pounds of “yellow cake” or uranium oxide, but produced only 4 million pounds. The rest came out of stockpiles or from imports, much if it from the reprocessed Russian nuclear warheads. The new Dept. of Energy under Dr. Stephen Chu has made a big priority of making loan guarantees available to expand nuclear capacity from a lowly 20% of our total grid. The price of uranium is also rising, dragged up by crude, and has bounced 25% from a low this year of $40/pound, to $50. You can take a look at Austin, TX based Uranium Energy Corporation (UEC), which could start production at its Golead mine next year.

Jul 23 04:02 PM

[MarkitWacha:]

I disagree with you on the bonds on the basis of supply. There's no market segment ready to absorb $500 billion of bonds. If the equities fall, bonds will be flat.

Jul 23 04:42 PM

[gcalex:]

Anybody have an opinion on UEC, seems like a much safer equity than URPTF.

Jul 23 04:55 PM

[William Dav...:]

How many reprocessed Russian nuclear warheads are there, they must have huge stocks, if only 50% comes from mines. It would appear the Russian control the price not the market.

Jul 23 07:03 PM

[chux08:]

You can make yellow cake from the radioactive material in a Russian nuclear weapon?? I'm no nuclear engineer and besides doubts on that, why would you do that cost wise? From relatively cheap yellow cake to a costly, refined, precision material suitable for nuclear weapons and then back to "cheap" yellow cake?? IF true, that sounds like some oxymoron of a nightmare scenario only the government could dream up....I'll bet cheap.
Tell you what....soon as I see the price of a pound of uranium near $70 or so (instead of the present $48.50) and I predict you'll see many new sources of U-308 come magically into production. Shortages AND low prices have a way of....correcting themselves, according to von Mises, (unless it's the same (concentrated short) crowd that's currently stepping on silver to hold that price down. But that's a tale for another day!)
Otherwise, if there's such a shortage of uranium oxide as several of these articles state, then why is there such a low spot price?

Jul 24 02:50 AM

[fran:]

you need to understand more about uranium pricing-- long term contract vs spot. little volume occurs with spot.

the reprocessing on warhead fuel is done under USA/RUSSIAN strategic treaty to reduce mutual capacity[by specific numbers by year]. the fuel available to mkts is controlled under said teaty to limit mkt price impact.

spend some time in search mode on web.


On Jul 24 02:50 AM chux08 wrote:

> You can make yellow cake from the radioactive material in a Russian
> nuclear weapon?? I'm no nuclear engineer and besides doubts on that,
> why would you do that cost wise? From relatively cheap yellow cake
> to a costly, refined, precision material suitable for nuclear weapons
> and then back to "cheap" yellow cake?? IF true, that sounds like
> some oxymoron of a nightmare scenario only the government could dream
> up....I'll bet cheap.
> Tell you what....soon as I see the price of a pound of uranium near
> $70 or so (instead of the present $48.50) and I predict you'll see
> many new sources of U-308 come magically into production. Shortages
> AND low prices have a way of....correcting themselves, according
> to von Mises, (unless it's the same (concentrated short) crowd that's
> currently stepping on silver to hold that price down. But that's
> a tale for another day!)
> Otherwise, if there's such a shortage of uranium oxide as several
> of these articles state, then why is there such a low spot price?

Jul 24 01:56 PM

[437339:]

Re

Check out Thorium Power THPW . They are Now in the process of JV with Areva . Their stock shot up last week on the announcement. Company priciples are HUGELY long the stock .

Jul 27 08:50 PM