Technical Analysis Report: Uranium stocks show signs of life

Ever since the great bull-run in uranium prices leading into 2008 investors have been waiting for the second leg up.

The macro story, after all, didn’t change after the crisis of 2008 subsided: a surge in nuclear reactor construction in places such as China, India and Russia would tax current supplies and hold uranium prices, and the stocks of those that mine it, at lofty levels.

But while gold and base metals recovered nicely after the credit crisis uranium stocks never really found their footing. There were the micro rallies but not the sort of sustained run that many anticipated.

And then Fukushima happened. The meltdown at the Japanese power plant in March of 2011 threw the entire industry into a tailspin as governments around the globe openly wondered if they should continue with their nuclear programs.

But long suffering uranium bulls have recently been given signs that their favoured metal may indeed be rising from the ashes. Japan announced it has restarted its first nuclear reactor since the Fukushima disaster led to its shuttering all 50 of the active reactors in the country.

And while the country still grapples over deciding how big a part nuclear energy will play in its future energy mix, the re-opening of the Ohi reactor in western Japan signified the government will likely include nuclear as part of its national energy policy.

The energy source’s status in the country had been thrown into doubt after Fukushima when the government said it was devising a new energy strategy and that nuclear could make up 20% to 25% of the total energy mix, or 15%, or zero. Up until the meltdown the country had drawn 30% of its power from reactors.

An announcement on the specifics of the energy policy is expected in the fall, but with the re-opening of the Ohi reactor the scenario in which nuclear makes up no part of its energy mix now appears remote.

As for the uranium sectors performance so far this year, uranium stocks had been following the general market trend for the first half of the year: up in the first few months and then reversing through the second quarter.

During that reversal, investors were concerned about a reduction in the number of reactors in Japan and a slowing of China’s reactor development program. Such worries have been eased somewhat by the recent news out of Japan but there is still uncertainty surrounding the industry.

One interesting aspect to the current condition is that the flight to defensive blue chip stocks is being reflected in the uranium sector as well. The move coincides with a growing investor preference for more liquid stocks with stable earnings which has translated into better performance for established producers.

This is precisely the case with blue chip uranium producer Cameco (CCO-T, CCJ-N) — a company that accounts for roughly 16% of the world’s production from mines in Canada and the US.

Cameco’s shares were the first to rally as they began to climb at the beginning of June from the $19 range up to over $23. Over that time its share price crossed above both its 50 day and 200 day moving average — which is a bullish indicator. The rally, however, is flashing signs that it might be poised for a slight correction as the RSI indicator has touched the bottom of the over-bought zone and the Williams % R indicator is also flashing overbought. The MACD indicator has been steadily rising but is showing signs of topping out. Overall the technical indicators are pointing to a short term correction to the recent run up. But that could only be a minor correction in an overall upswing.

Uranerz Energy (URZ-T, URZ-N), which recently announced the discovery of a new uranium trend at the Monument project in the Powder River Basin, Wyoming, has a price chart that reads like a lag to Cameco’s. The lag may be explained by the greater severity of its sell-off during the overall market pull-back in the spring. Uranerz’s stock fell from the $3 range in early February all the way down to the $1.20 range in late May but has come back to life as evidenced by crossing its 50 day moving average recently. With a mini-rally from early June its stock price has reached $1.58 and its RSI and Williams % R indicators say it hasn’t reached the same overbought levels as Cameco although it is approaching those marks.

Denison Mines (DML-T, DNN-N) has its key projects in Saskatchewan, Zambia and Mongolia. One of the company’s key assets is its 23% stake in the McClean Lake uranium mill in northern Saskatchewan, which is one of the world’s largest uranium processing facilities.

Unlike Cameco and Uranerz, instead of rallying through June, Denison’s stock continued to sell-off through the month before finally kicking in at the beginning of July. That later rally means its MACD is the most bullish of the three with the MACD line only having just crossed the signal line from below (a bullish indicator). William % R has only just reached overbought status and RSI is further from the overbought zone than both Cameco and Uranerz.

So while uranium stocks have begun to emerge from the doldrums, with the blue chips leading the way, should Japan announce an energy policy that includes nuclear as a significant part of the mix? Investors could see stocks finally make that sustained run that has been anticipated for nearly five years now.