This Sleeper Energy Trade Is a Coiled Spring
Listen to this post
Speaking at the Bloomberg New Economy Forum, Ken made two key points about nuclear and renewables:
- The West is not investing anywhere near enough into nuclear energy to hit 2050 climate goals.
- China is investing a whole lot more than the West is, and any trade disputes between them that involve green energy transition have the potential to make problem No. 1 a lot worse.
I’m confident it will see a wave of investment in the coming years as it becomes clear that solar, wind, and biofuels won’t be enough to support a net-zero world without huge cuts to consumption. And let’s face it – energy demand is going nowhere but up.
Uranium also happens to be the best-performing major fuel commodity of 2023, leaving everything else choking on its dust.
In fact, it’s up another 7% since I last wrote you, while all the others have dropped…
And now, with Ken Griffin sounding the alarm, I’m doubly confident that nuclear will become a growing part of the global energy mix.
The best time to invest in quality nuclear energy stocks has long since passed. But that doesn’t mean right now is a bad time, either.
Let’s take a look at the fundamental and technical picture of the nuclear energy sector today and see if there’s a trade to be made…
A Trade as Old as TimeThe reason nuclear energy stocks are ripping higher in 2023 is similar to what I showed you yesterday about oil.
It’s a trade as old as time: Supply is simply not keeping up with demand.
Global energy demand is growing at 5% a year, according to Uranium Energy Corp. vice president Scott Melbye. It’s also working with a structural deficit, as the gap between global uranium production and consumption is over 50 million pounds.
The only way this supply-demand imbalance will correct itself is through new mines coming online. And with a flood of capital rushing into the nuclear energy sector, it’s easy to see this happening.
The Sprott Uranium Miners ETF (URNM) has gained 45% this year alone. And the Global X Uranium ETF (URA) has risen 34%.
That, along with direct investment in nuclear energy stocks, is giving firms the capital they need to bring new mines online and serve this supply deficit.
That alone is a good reason to invest in nuclear energy stocks. Buying assets in such a solid uptrend with a favorable supply-demand imbalance is rarely a bad idea.
But what strikes me about this is the uranium sector is still somewhat cheap. URA’s price-to-earnings (P/E) ratio, at writing, is just 20. Now, that’s quite a bit pricier compared to a broader energy sector ETF, like the Energy Select Sector ETF (XLE). But it’s a lot cheaper than the S&P 500 at 24 times earnings, which is up just 15% this year.
That’s why I believe, despite the gains in the sector this year, nuclear energy stocks are set to run higher.
Let’s look at the chart for more evidence…
A Coiled Spring Ready to MoveI really love the look of the URA chart here. Take a look…
URA is down about 5% from its highs, recovering from the 13% valley it was trading at back at the start of October.
But just from looking at the Relative Strength Index (RSI – the middle portion of the chart), we can see that URA is just above neutral, and on a buy signal after crossing the yellow signal line.
The moving average convergence/divergence (MACD – the lower portion) indicator has also cycled back toward neutral, and is on a buy signal with the blue signal line bouncing off the longer-term orange trendline.
There are two horizontal support lines (the yellow dashed lines in the top portion) we can look at here: the bottom support at $25, and the top resistance at $27.
URA is testing the upside resistance as we speak, catching a bid and leaving a long candle wick behind. That’s a sign of buying interest from Friday’s lows.
If it breaks that resistance, URA could easily make a run at new highs. The RSI and MACD indicators both trading near neutral tells me this rally has lots of room to run. It’s like a coiled spring ready to punch higher.
One final thing to note is the next yellow resistance line up at $28.45. URA last touched this level at the end of September, but also all the way back in April 2022.
Breaking that resistance would be a clear sign of momentum, and potentially a sign of URA reaching a two-year high. That kind of chart would be undeniably bullish… because the next high after that is the one set in 2014.
All told, I’m still bullish on URA here and the nuclear energy sector in general. I added to my favorite nuclear energy stocks on the recent downturn.
I think it’s a good play for the coming months – and even potentially longer, if the momentum stays strong.
The easiest way to play this is by buying the Global X Uranium ETF (URA), which invests in a basket of diversified energy companies.
For the traders out there, I’d say to scout for at-the-money call options dated a few months out if we get a breakout of the top trendline at $27 per share.
To your health and wealth,
Editor, TradeSmith Daily
P.S. I understand some folks get a bit antsy about investing in nuclear energy stocks, given the spotty history with nuclear power… not to mention nuclear weapons.
Do you feel that way? Moreover, do you feel that nuclear energy has a greater role to play in the future, despite this sentiment?
I always love to hear what’s on your mind. Write me at [email protected] with your thoughts on this or anything else you’d like to ask.