The uranium crazies are back
Originally published in the Against All Odds Research April 2022 Issue.
On December 30, I got back into the uranium trade using the weakness from tax loss selling. I wrote:
"I think the bottom is in for uranium stocks and we bounce a bit from here. After getting out in September, I finally got back in today, taking a position in URG (at $1.22). The way tax loss season works, trades need to be settled by Dec. 31 for the losses to count for this year. Since US markets operate on a T+2 settlement system (trading date + 2 days), that means today (12/29) was the last trading day available for booking tax losses. The selling pressure on the weak stocks should subside here. If you have been waiting for a bottom before buying, now's a good time to start deploying that cash.
I chose URG because it is my favourite stock to trade in the uranium space."
Shortly after that, the uranium market got a boost due to protests in Kazakhstan.
On Jan 21, I added to the uranium position by buying the Sprott Physical Uranium Trust (U.UN, SRUUF) at C$13.75. I wrote:
"The Kazakh situation is unresolved but U.UN (SPUT) is trading at an implied uranium price of US$40.4/lb. It's time to buy U.UN/SRUUF, even though I don't like the fund structure. If you have access to the LSE, you could buy YCA, but the volumes (and Twitter marketing) are going to be higher for the Sprott trust, so I'm going with that."
On Thursday (3/17), I closed the position in U.UN at C$17.88 for a 2-month gain of 30%. We're sitting on an unrealized gain of 41.8% on the URG trade.
You can see my recent thoughts on uranium at my new Telegram page
I like uranium. I like profitable trades. I'm glad my uranium trades have worked in my favour. I even wore my Ur-Energy hat on my honeymoon in Maldives last October, as a nod to the trade that paid for the trip.
The only thing I dislike about uranium are the uranium crazies. Not the Moslems in Iran who dare to oppose American sanctions, but the Twitter personalities who lure in unsophisticated retail traders with promises of instant riches.
I like uranium twitter in general. That's where I source breaking news for the most part. And staying updated is important because this is a small, sentiment driven market that quickly reacts to material news.
It's the bad apples among the uranium bulls who really annoy me.
Kevin caught my attention by talking about reactor underfeeding being a thing of a past, which I agree with. Spiking electricity costs, and reduced enrichment capacity if Russia stops supplying enriched uranium, mean Western enrichers will optimize for SWUs rather than for yellowcake (U3O8). To cut the jargon, enrichers would rather waste uranium than electricity while making fuel rods for use in nuclear reactors.
I clicked through Kevin's thread thinking I was in for meaningful insights. Instead, it turned out the pinned tweet was mere clickbait, meant to sound sophisticated in order to lure in the rubes looking for a market guru.
Remember those calls for bitcoin $100,000? PlanB's flawed stock-to-flow model being touted as "proof"? (As an aside, see here for an excellent take down of the much publicized bitcoin S2F model). Kevin's tweets on predicting the 2007 uranium price spike to $140/lb and his call for $200/lb in 2022 are in the same plane of BS.
In October 2006, the spot price of uranium was $60/lb.
Then Cameco (CCJ) made a mistake which led to ground fall and flooding at the Cigar Lake mine, one of the few key uranium mines in the world. The mine was closed, and Cameco struggled with technical challenges which led to uncertainty over whether or when Cigar Lake would reopen.
During that brief panic, helped along by the blow off top in commodities, spot uranium prices reached a peak of $140/lb in June 2007. Note that the long term price inched higher, but the move was much more muted ($59/lb to $95/lb). As the speculative excess died off, spot prices dipped below long term prices and except for a brief spike during the 2011 top in commodities, the spot price has been well below the long term price until the arrival of SPUT.
Unless Kevin moved the market himself, it is impossible for him to have correctly predicted the top in 2007. He could have predicted that the flooding at Cigar Lake would have a positive impact on uranium prices. He could have predicted that uranium would rise along with oil and the rest of the commodities. He could have predicted that pounds in the spot market would get scarcer, leading to a divergence between the spot price and long term price. But that's not what he's saying with his Tweets.
No, he's appealing to his skill at reading tea leaves and gazing into crystal balls. He nailed the last top, after all.
Once he gets you credulous enough to believe what he says, starting with sophisticated sounding words which nobody understands...
It's all complicated, but 100% valid, trust me, I'm the uranium expert ...to claiming to have predicted $140/lb uranium in 2007
...you are now primed to swallow everything he says without question.
Uranium is going to $200. BUY BUY BUY. Buy all the crappy little exploration stocks and get some volume going, so the whales can then unload without moving the price down too much.
After he has sold you on it, some logical reasons for why uranium is going higher follow. That way, the amateur traders who won't be fully convinced by a guru, will get suckered in because they will think they are making a logical decision and not just YOLOing in.
If you don't have the time to trade professionally and rely on the advice of finance professionals, I highly recommend reading Robert Cialdini's Influence: The Psychology of Persuasion so you can spot these tricks and be immune to them. Social media is meant to appeal to our emotions rather than our logic, and while Twitter is a great place to source ideas from (HT to @mintzmyer for putting me on to Zim Integrated Shipping), always beware of the market gurus!
Uranium went down and then up last week, the former on news of an earthquake in Japan, the latter on news of a Senate bill banning importation of Russian uranium. The uranium crazies, who had stayed silent during the down move, started chest thumping again on the move up.
But the move up came after a down move that didn't sit well with me technically.
On Thursday, I wrote:
"I've sold my U.UN position -
because it hit 3 types of stops I look at, the 20 EMA, 3 ATR and PSAR stop,
I don't like holding positions which are so news driven since that's not my forte. By the time the it's in the news, the move is mostly done.
Still holding URG because it'll benefit massively from any push to increase US uranium production. I prefer it to UUUU because URG is smaller cap and more of a pure play, and I prefer it to UEC because I dislike the promoter (and his business methods) running the show at UEC. If this bill becomes law, I'll start looking at other US uranium explorers with ISR projects that can be fast tracked to production. It's a small list."
I'll keep watching the charts, waiting for a re-entry signal on U-UN.TO or YCA.L. I'll look for opportunities to buy into other uranium equities.
Watch out for the uranium crazies, but don't dismiss the uranium equities just because it feels like we're at an extreme in sentiment. As a trend trader, it doesn't really matter whether uranium goes to $60 or $100 or $200 - all the matters is whether this is a setup for a potentially profitable trade with defined risk. Bubbles can always grow bigger before they burst, and the big gains are made when the trend goes parabolic. We could be on the cusp of that with uranium.
Sprott Physical Uranium Trust (SRUUF, TSX:U.UN)
Yellowcake plc (LON:YCA)
Uranium ETFs (URNM, URA)
Cameco (CCJ, TSX:CCO)
Paladin Energy (ASX:PDN)
Energy Resources of Australia (ASX:ERA)
[Dormant] US uranium producers: Energy Fuels (UUUU, TSX:EFR), Uranium Energy (UEC), Ur-Energy (URG, TSX:URE)
Explorers: NexGen Energy (NXE), Denison Mines (DNN), Fission Uranium (TSX:FCU), Laramide Resources (ASX:LAM, TSX:LAM), GoviEx Uranium (GXU.V), IsoEnergy (TSXV:ISO), enCore Energy (TSXV:EU), Boss Energy (ASX:BOE)
Other: Centrus Energy (LEU), Global Atomic (TSX:GLO)