In the past year, uranium producers have drastically cut production. Big funds were established to hold physical U3O8, removing more supply. And Cameco is buying large volumes in the spot market to fulfill its contracts.
In very short order, the spot market will dry up completely and utilities will have to face the music and sign new long-term supply contracts… in the shadow of a looming deficit.
The market is now heating up and it’s time to own uranium stocks. The spot price keeps moving higher.
The uranium spot price is setting two-year highs and has rallied to major resistance at US$28 per pound. That’s where the last level of defence exists, shown by the top pink horizontal line. If the spot price closes above that level on a monthly basis, uranium could see a gigantic move to the upside.
Look at the large price bursts above that level on the chart, for example.
Now there’s no guarantee the next phase of the rally will start today, tomorrow or any time soon. We might get a technical retracement off last-level resistance. In other words, a monthly closing above US$28 per pound might not be sustaining. Uranium could still trade sideways or pull back towards support to ‘shake’ the bulls into year’s end.
Financial markets are full of surprises.
That said, given the recent price developments, we’re bullish.
It’s a tough resources market.
But we have seen this price action happen many times in the past. If we’re correct, it’s pretty obvious what happens next.
Looking at the above chart, we can see a major gap above US$28-$30 per pound. I believe this gap is key. A technical closing above US$30 per pound should see more institutional and high net wealth money move into uranium stocks.
That’s when the fun should start…
A technical closing above US$30 per pound could see a sharp rally to US$34 and a closing above US$36 could trigger a burst to $40 per pound. Keep in mind, while the market doesn’t expect it to happen today or tomorrow, this price action could play out quickly.
The bottom line: Trade the trade. Uranium looks bullish on the charts and remains a standout performer in the commodities sector. So, while we could see a slight pull back around these levels, the party looks to be just getting started. Uranium could take off to much higher prices in the months ahead. I believe this is the time to buy uranium stocks, before the train leaves the station.