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Analysis

Uranium: An Attractive Long-Term Contrarian Play

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If you are a contrarian investor, then you should have a look at Uranium. In 2011, Uranium hit a high of $73 a pound, which itself was about 50% below the highs of around $140 per pound reached in 2007. At the current levels of $20.5 per pound, Uranium is down more than 85% from the highs.

Key Findings

  • Uranium prices are in a long-term downtrend since the Fukushima incident in 2011
  • Demand is likely to pick up in the next few years with new plants under construction
  • Supply is constrained with world’s top producer Kazakhstan reducing its output by 10%
  • Uranium has strong fundamentals, however, price realization might take some time
  • Use a staggered approach of investment. Buy only for the long-term
  • High risk – High reward investors can buy URA ETF, while the risk-averse can buy NLR ETF

So, Uranium prices are low – that’s established. But, what has changed now that qualifies Uranium as a buy? Read on.

What was the Reason for the Collapse in Prices?

The first commercial reactor in Japan was commissioned in mid-1966. Since then, Japan added around 50+ reactors by 2011 that supplied about 30% of the nation’s electricity, which was expected to increase to 41% by 2017 and 50% by 2030.

However, after the 2011 Fukushima accident, which was one of the worst nuclear disasters since the Chernobyl incident in 1986, nuclear adoption took a back seat and all nuclear reactors in Japan were shut. Post the accident, new stringent tests are undertaken before allowing any nuclear facility to start operations. The status of the Japanese reactors is shown in the image below.

The World Nuclear Association said:

Currently, 42 reactors are operable and potentially able to restart, and 24 of these are in the process of restart approvals. The first two restarted in August and October 2015, with three more since.

However, it wasn’t Japan alone that shut its reactors. The Fukushima incident led Germany to shut eight of its 17 reactors with the remaining to be phased out by 2022. Spain, Belgium, Switzerland are also moving away from nuclear power.

A few other nations that had planned or were in the process of constructing nuclear plants have abandoned them and others have pledged to remain nuclear free. This led to a massive drop in demand and painted a bleak picture for the future. As a result, Uranium prices nosedived.

What has Changed Since then?

The current Japanese Prime Minister Shinzo Abe is a supporter of Nuclear technology for meeting Japanese electricity requirements.

Our resource-poor country cannot do without nuclear power to secure the stability of energy supply while considering what makes economic sense and the issue of climate change..

Abe told a press conference back in 2016.

Hence, expectations that Japan will again restart at least part of its operable Nuclear plants is a positive.

Additionally, a number of developing nations like China, India, and others are turning towards Nuclear technology to feed the increasing electricity requirement of the rising middle class. Using fossil fuels has led to huge pollution problems, which can only be tackled either by nuclear technology or other clean energy resources. Hence, these nations are turning away from fossil fuels and nuclear technology is likely to be one of the major beneficiaries along with natural gas and renewables.

As of May 1st, 2017, there were 447 nuclear reactors in operation globally and 59 reactors under construction. However, World Nuclear Association says that 170 reactors are planned while 372 have been proposed. These will boost Uranium demand in the future as and when they get commissioned. Readers can read the details and the countrywide breakup here.

Demand Likely to Increase in the Next Three Years

There are various estimates by different organizations, for high, mid and low levels of demand, as shown in the chart above – sourced from the IAEA. Demand is likely to increase in the next three years, beating production during the same period, because the world’s top uranium producer Kazakhstan has planned to cut its output by 10% in 2017.

State-owned uranium company and global production leader, Kazatomprom Chairman Askar Zhumagaliyev said in a statement:

These strategic [uranium] assets are far more valuable to our shareholders and stakeholders being left in the ground for the time being, rather than adding to the current oversupply situation.

Source: Mining.com

This is a major development because Kazakhstan has been increasing its production in the last few years. Its production increased from 19451 tonnes U (tu) in 2011 to 24575 tU in 2016. A 10% cut will reduce its production by 2457 tU, which is equal to what the nation had produced way back in 2013.

In 2016, the total global production was 62027 tU. For 2017, the total demand projection according to the World Nuclear Association is about 67,867 tU. Though the demand is higher than the supply, in the last six years, there has been a huge inventory build-up due to the absence of Japanese consumption. Hence, this inventory will act as a secondary source of supply for the next few years.

Nevertheless, lower supply and higher demand will push prices higher in the next few years.

Analysts are also Getting Bullish on Uranium

We expect global uranium demand to rise roughly 40% by 2025, a staggering amount for a commodity that saw next to zero demand growth in the past 10 years…

said Morningstar analyst David Wang. He has a target of $37 a pound for this year and $65 by 2019, reports Market Watch.

From a fundamentals standpoint it’s pretty clear that demand for uranium is going to rise given what we know of nuclear power construction activity over the next 10 years,” said John Robertson, executive director at EIS Capital Management. “It might be a little while before there’s a noticeable improvement in the fundamentals of the uranium market but I think that the downside risk from an equity point of view has been greatly reduced…

reports The Australian.

Risks to our Analysis

With different options like wind, solar, natural gas, etc. available, chances are that the countries will opt for them over the riskier nuclear energy. Any untoward incident in any nuclear plant will signal the end of nuclear energy and Uranium prices will sink further.

What do the Charts Forecast?

The weekly chart shows that Uranium futures are clearly in a downtrend, however, there is a bottom formation in progress. We will get our first indication when Uranium prices breakout of the downtrend line and move above it, which should be close to 24 or 25 levels. A confirmation of a likely double bottom will be signaled when price breaks out of the recent swing high of 27.5. The pattern target of the double bottom is 37.5.

On the daily charts, we find that price has broken out of the 20-day EMA and the downtrend line and is approaching the 50-day EMA. Uranium prices are showing first signs of bottoming out.

How do we Play This uptrend in Uranium?

There are two ETFs that focus on the uranium market. The Global X Uranium ETF (NYSEARCA: URA) and the VanEck Vectors Uranium+Nuclear Energy ETF (NYSEARCA: NLR).

While URA consists of uranium mining companies, its portfolio contains a number of penny stocks, making it the riskier of the two. It has a five-year return of negative 18.67%. Also, among its top 10 holdings, it has five stocks that are quoting under a dollar and its top two holdings make up 33.54% of its assets. This ETF can be a good play when uranium prices gain momentum, as then the penny stocks will jump higher.

For now, we believe that NLR is a better and safer option for the investor. It has a five-year return of 7.39% and a year-to-date return of 7.54%. The ETF has better quality stocks in its portfolio. However, the risk involved is the low assets under management of only $31.39 million and a large bid-ask ratio. It is also skewed with companies listed in the US and Japan. It, therefore, misses out on the companies from France, Canada, and others.

Therefore, investors who want a high reward for their investment but are willing to take a higher risk should buy URA, whereas, investors who are risk averse should buy NLR. We expect a 40-50% return on investment in the next two to three years.

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 9 rated postsRakesh Upadhyay is a Technical Analyst and Portfolio Consultant for The Summit Group. He has more than a decade of experience as a private trader. His philosophy is to use technical analysis for momentum trading and fundamental analysis for long-term positions. Rakesh likes to keep himself fit by lifting weights and considers himself to be a spiritual person.




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2 Comments

2 Comments

  1. gullyfoyle

    July 2, 2017 at 4:15 pm

    Thanks for the analysis, was interested in uranium about a year ago. Thanks for bringing back to my attention.

  2. GRACE88

    July 3, 2017 at 12:23 am

    Thanks for the update.

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Analysis

Tesla: A Good Option to Invest

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

Not so long ago, people only had landline phones that you couldn’t take anywhere, which now looks very inconvenient to modern people. Then, mobile phones appeared, and while you can take them anywhere, you must not forget to charge them regularly. However, charging your mobile has already become as usual as, for example, brushing your teeth.

When it comes to automobiles, modern fuel cars are like landline phones, as you can’t go anywhere without fueling them at a gas station, spending your time and money and planning your day depending on how much fuel you’ve got in your car tank. Electric cars are certainly cars of the future, and charging them would be something modern people are already much used to, as natural as fueling them now. It’s not the question of how much crude oil we still have on Earth; the point is that the progress is moving forward, and combustion engines, which are complex and expensive to maintain, will sooner or later become obsolete. Electric cars, where you don’t have to constantly watch how much engine oil or coolant remains inside, are about to replace the traditional fuel cars.

Tesla, a company founded in 2003, is by far the leader in electric cars production. One of its founders is the famous Elon Musk, an engineer and inventor.

Tesla presented its first electric car concept called Tesla Model S on March 26, 2009, in Hawthorne, CA. On June 22, 2012, after all R&D was completed, it was launched in the market and cost $112,000.

A few months later, the second prototype came in: this time, it was a crossover, Tesla Model X. According to Musk, Model X serial production would start in 2013, and the car would be available in late 2014. These plans proved to be too optimistic, though.

The supply start date was only announced in February 2014, but then postponed to Q2 and Q3 2015, and it fact the first supply was completed In September 2015. By the end of Q3, only 6 Model X cars were sold, each for $80,000.

In 2016, a new car, Tesla Model 3, was announced, and the sales were scheduled for the same year, but then the start date was postponed to 2017. The first Model 3 was actually sold in June 2017, at $35,000.

Since the first model sales start and up to now, the company has been unable to reach any net profit, with all earnings reports showing losses. The company was on the verge of bankruptcy as long ago as in 2008, and only a NASA contract saved it.

Perhaps the famous April 1 joke posted then by Musk was based on this very event.

However, it’s all quite different now.

Looking at the financial indicators of the company over the last 4 years, one can easily see where those losses come from. In 2014, Tesla invested $464M on R&D, while in 2015 they invested $717M, in 2016, $834M, and, finally, in 2017, the R&D cost Tesla $1.378B.

The losses were growing in proportion, but were cut in 2016 thanks to Model X sales. In 2018, the same may occur, as Model 3 is going to be quite popular, so the company may even start receiving profits.

Before 2015, the revenue came from a single model, which was Model S. In 2015, 50,446 cars were sold, with the total gross income of $5.649B.

In 2016, they started to sell Model X, which boosted the total year revenue to $7.728B.

If the company did not invest so much into R&D, perhaps, Tesla Inc. reports would now look far better than they are, but this would not last long, as the competition is also doing something.

When Model S sales started, it cost $112,000, while the average US citizen monthly income was $4,121. While not everyone could afford such a car, the sales went on rising, as Model S targeted mostly the luxury segment.

The next model cost $30,000 less, but was still inaccessible for an average consumer. This is why Tesla decided to release Model 3 at $35,000, much cheaper than the previous models. However, a bad surprise was expecting the company afterwards.

When Model 3 was presented, people could start applying for it with a deposit of just $1,000. By the end of the day, there were already 180,000 applications; three days later, the number already reached 272,000, and by May 2016, it went on rising to reach 373,000.

However, this only led to more expenses, as the company had to upgrade its production infrastructure in order to meet all those applications (the number of those exceeded the total number of cars sold since start).

When Tesla allowed its customers to apply for the new model, its production capacity was just 120 cars per week, while in order to meet all the needs Tesla had to boost it by 60 times, to 7,200 per week. Elon Musk is a go-getter, but this was crazy even for him.

Both investors and customers are already used to Musk not fulfilling his promises on time; this already happened with both Model S and Model X, where the supply date was postponed multiple times. It has not changed much now. By the end of Q1, Musk promised to reach 2,500 cars per week, but in fact was only able to boost it to 1,987. After breaking this promise, Musk said he was going to get 5,000 Model 3 cars per week by the end of Q2, and, curiously enough, this target was reached, according to the report as of July 2.

This news made the stock price go up, but right at the end of the trading session it was again down by 2.3%, as many investors just did not believe the report was true.

With the past experience of Musk’s promises being quite negative, Bloomberg developed an online tool where everyone can track the Model 3 production process by VIN. The news agency sends a request to the National Highway Traffic Safety Administration (NHTSA) website which sends a response on the number of VIN’s registered for Model 3.

However, car manufacturers usually register VIN’s for the whole batch, so the values Bloomberg gets may be a bit higher than they in fact are. Still, according to these stats, the company reached 4,395 cars per week by July 2.

So, in fact, Musk did not fulfill his promise again, and the market reaction was of course negative. However, the key point here is not fulfilling promises but the overall progress that was made over such a short period of time. Just 6 months ago, Tesla produced around 200 Model 3 cars per week, while now this figure is over 4,000. Tesla market cap is already higher than the one of Ford Motor Company and nearly in line with that of General Motors, while those too have over 100 years of experience in car production and sales.

If Tesla is able to maintain the same progress as before, it will produce over 52,000 Model 3 cars by late Q3, which will lead to good Q3 and Q4 reports, while all negative effects of the trade war against China will be void.

Besides, if we also take Model S and Model X sales into account, chances for good reports get even higher.

Reaching 5,000 cars per week is a very difficult task: Tesla even had to place its new assembly line in a tent.

This GA4 (general assembly) allowed the company to boost the production by 20%, and it actually proved to be one of the key decisions.

Meanwhile, Musk says GA3 will be well enough to maintain the production capacity at 5,000 cars per week, while GA4 will help to reach the further target of 6,000 cars. With Tesla products being in demand, investors can be quite optimistic regarding the future of the company and invest more, although they do have some risks.

Tesla is now a leading electric cars producer with relatively accessible prices, but the competition are also looking towards electric car production, which may of course shrink the demand. Other risks include emergencies coming from the autopilot mode Tesla is quite fond of. There is no law regulating the driver responsibility in such cases yet, so the company has to face claims against itself, which lead to Tesla recommending using autopilot only as an additional feature that does not allow the driver to stop watching the road.

Doug Field, a talented engineer, leaving the company after working with it for 5 years is also an important negative factor. Elon Musk says this should not have any influence on the indicators coming in the following quarters, or on the new Tesla cars production.

Technically, there is a clear ascending trend on W1, with the price using the 200-day SMA as a support and constantly bouncing off it. The price has also managed to stay above $300, which may help it go further up, too.

There is no MACD divergence that could stop this growth for now.

Just like before, Tesla looks like a very good option for an investment. Elon Musk may set too ambitious goals, but he achieves them sooner or later. The demand for Model 3 still exceeds the production capacities, with over 400,000 cars pre-ordered, but this will also allow the company to develop new models. As such, the 40-ton truck, Tesla Semi, was already announced to the public in November 2017, and its serial production is scheduled for 2019.

According to some sources, there have already been 1,000 pre-orders, with the deposit increased from $5,000 to $20,000.

Thus, Tesla may become the first company to produce an electric truck in 2019.

 

Disclaimer

Any forecasts contained herein are based on the authors’ particular opinion. This analysis may not be treated as trading advice. RoboMarkets shall not be held liable for trading results based on recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 4 rated postsHaving majored in both Social Psychology and Economics, Dmitry went on to continue his education in post graduate. He then worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped him to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. Dmitry is a pro in the financial field who authors articles for various international media. He also holds the position of Chief Analyst at RoboForex.




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Analysis

Crypto Update: Technical Setup Unchanged Despite Encouraging Rally

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Cryptocurrency bulls could breathe a sigh of relief on Monday as the secular uptrend in the most valuable coin got saved yet again, as BTC rallied above $6500 for the first time in a week after a low-volume consolidation period just above the $6000 level. All of the majors joined the rally as correlations remain very high in the segment, and the market recovered 10% on average with the total market cap of the coins getting back to $275 billion.

Despite the rally, the top coins are still stuck under key resistance levels, as the recent swing highs are still above the current prices and from a short-term standpoint, the downtrend is still intact. Until a move above the crucial levels, traders should still stay away from opening new positions, as odds continue to favor another test of the June lows.

That said, given the still intact long-term bullish setups in the most important digital currencies and the very negative sentiment that developed thanks to the long declining trend, a short-term trend change could be ahead. A bullish leadership is still yet to form, although Bitcoin’s short-term relative strength is a positive sign.

BTC/USD, 4-Hour Chart Analysis

In BTC’s market, all eyes are once again on the $6750-$7000 zone that has capped the really attempts for a month now, and below that zone, the largest coin remains on a short-term sell signal. As the coin didn’t hit a lower low, a bullish pattern could form in the coming weeks, but until it remains in the current trading range, traders shouldn’t enter the market. Support above the long-term $5850 level is found at $6500, $6275, and $6000 while further resistance is ahead at $7350.

Altcoins Slightly Lagging Behind Amid Broad Rally

LTC/USD, 4-Hour Chart Analysis

The major altcoins are in very similar short-term technical setups, thanks to the strong correlation between the coins, and the most bearish coins, like Litecoin, NEO, Monero, and Dash are still below the key support levels that they violated in June. While the previous lows held up this weekend, investors should still remain defensive with regards to the relatively weak currencies.

LTC/USD, 4-Hour Chart Analysis

That still points to a dangerous long-term setup in the segment, and further technical progress is needed to switch the segment-wide trend. Ethereum remains below the key $500 level, although the coin managed to rally above the $475 level yet again, despite being relatively weak from a short-term perspective compared to BTC.

A rally above $500 would be a very positive short-term sign for ETH, and it could trigger a move to the $555-$575 zone. Primary support is at $450, with further levels at $420, $400, $380, and $360, and below $500 the short-term sell signal is intact.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 293 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

US Opens New Front in Trade War as Oil Plunges

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Financial markets are relatively calm today, with most of the major stock benchmarks being virtually unchanged after the weekend. The energy segment is experiencing the most activity as the volatile correction in crude oil prices continues. Besides that, the Euro’s relative strength is notable, but summer trading conditions remain dominant across the board, with low volumes and choppy intraday price action in most of the asset classes.

Shanghai Composite, 4-Hour Chart Analysis

There seems to be no stopping in the global escalation of trade tensions, as amid the Helsinki meeting between Trump and Putin, the US launched an official probe concerning the retaliatory tariffs of its largest trade partners. The move could deepen the standoff not just between the US and China, but the EU and its other allies as well, and global growth is already weakening, so with further trade troubles growth could grind to a halt.

S&P 500 Futures, 4-Hour Chart Analysis

While global stocks are still well off their highs, and Chinese equities remain in bear market territory, the main US indices are holding on to their recent gains, with the Nasdaq being the by far the strongest benchmark globally. The slightly weaker S&P 500 is also trading at a 4-month high despite trade war fears, and as the first earnings reports of the second quarter were slightly better than expected, with Bank of America beating today before the bell, bulls are still in control on Wall Street.

As for economic news, the much awaited US Retail Sales report delivered a small positive surprise, and last month’s figures were also revised higher. The report helped risk assets during the US session, even as the disappointing Chinese Industrial Production number weighed on investors sentiment earlier on.

Dollar Index, 4-Hour Chart Analysis

Despite the bullish numbers, the Dollar lost a bit of ground against its major peers, although forex markets were less active today than recently and the most traded pairs traded in relatively tight ranges after Friday’s hectic session.

Oil Back Below $70 per Barrel as Commodities Remain Weak

WTI Crude Oil, 4-Hour Chart Analysis

Crude oil prices are sharply lower yet again, with the WTI contract leading the way lower as tight short-term supply conditions got better in Canada, and the general weakness in the global commodity segment infected the market oil. The IMF’s report on weakening global growth, and the chatter about the release of some of the global strategic oil reserves also weighed on oil, and the WTI contract is now at $68 per barrel after trading as high as $75 just one week ago.

Copper, 4-Hour Chart Analysis

Elsewhere in the commodity space, it has been a quiet Monday session, with gold drifting slightly lower after a weak rally in early trading, as selling pressure is still apparent among precious metals. Copper, which also has been suffering in recent weeks as Chinese assets got slammed lower, is still consolidating above the strong long-term support zone that we pointed out last week.

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 293 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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