Decadence

And how to embrace it.

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Embrace The Decay, Celebrate It!

The question for uranium names, currently embroiled in a big ol selloff because, you know, everyone is selling everything at the moment, is - did they decay enough yet to warrant getting back in?

We consider the Big Dog - Sprott Uranium Trust - in order to answer that question.

Note, this post was first published in our flagship Growth Investor Pro service.

Hard Sell Alert

First, we'll repeat our regular line on uranium fundamentals.  We are not experts on uranium fundamentals.  If you want to get smart on fundamentals, we suggest you do what we do and subscribe to Uranium Insider Pro, a $399/yr newsletter focused entirely on the sector.  We ourselves subscribe; the service is very good and is engaged at the highest level within this niche industry.  CEO conversations and whatnot. If you decide to sign up, doing so at this link gets us a a referral fee of approx $200; we'll split that with you with a $100 cashback so your net fee is $299/yr before any sales taxes.

Now, without further ado let's turn to the first uranium name we want to talk about.

Sprott Physical Uranium Trust

This is a Canadian listed entity - TSX ticker is U.UN but there is an ADR in the US, ticker, SRUUF.  Our chart uses the original U.UN version.  The fund has applied to the SEC to restructure as an ETF and was turned down so, for now, you have the choice of a Canadian entity or the ADR.

This fund is important because it is the first traded fund to truly financialize uranium in the manner of other commodities.  The fund raises capital and buys physical uranium in some quantities.  The fund also responds to the spot price of uranium.  Given that there are no 'fundamentals' to speak of - no earnings etc - this instrument trades very very well to waves & fibonacci levels, because there is really only sentiment to go on.

The two-year period from the Covid lows to late April 2022 saw the fund put in a larger-degree Wave One, broken down into a very clean 5 waves up structure.  The fibonacci extensions and retracements fit the textbook very well.  Full page chart, here.

• Wave 1 up; then a 0.618 Wave 2 retracement.

• Wave 3 up, peaks $1 (5%) shy of the 2.618 extension of Wave 1.  A 2.618 Wave 3 tells you this is a volatile beast and should be treated as such.

• Wave 4 down troughs at the 0.5 retracement of Wave 3 up.

• Wave 5 up peaks at - almost to the cent! - the 0.618 extension of Waves 1 & 3 combined, which is a textbook extension for a Wave 5.

That completes the larger-degree Wave One.

We're currently in a larger-degree Wave Two and if you look to the right edge of that chart you can see the retracement levels tracking back all the way down from the top to the bottom of that larger degree Wave One.  U.UN has so far struck a low a little above the 0.5 retracement.  That's not such a deep Wave Two as you know.  The retrace depth has caused a little fallout among the uranium investor community but if you ignore IRL and just look at this as a Fib chart, it's not such a bad retrace, it's just what you would expect - a little shallow still in fact.

When this Wave Two ends we would expect to see a larger-degree Wave Three take shape, catalyzed by (1) the IRL factors at work which are building fundamental demand for uranium and (2) a rebound in appetite for risk assets, which as you know from our work on SPY and other names, we are expecting.

So has the Wave Three started? Is now the time to buy? Well, let's zoom in.

U.UN - SMALLER DEGREE ANALYSIS - MAY TIMELINE

You see the low on May 13, then a move back up for a Wave 1 up.  You see a Wave 2 down which so far has been shallow, not yet hitting the 0.618 retracement of that Wave 1.

There's no evidence yet, looking through this lens at least, that a bottom is in.  What we're looking for is a Wave 1 up off the lows - we have that - then a Wave 2 that bottoms - unclear so far - then a Wave 3 that reaches above the Wave 1 high - we don't have that yet.

Until we see that, the trend can continue to be down.

So for now - is this buyable?

Well, anything can happen and if for some reason you are desperate to own some of this thing, it's not silly to start accumulating a position.  You just have to be ready to either have a stop-loss triggered (placing one below that $13.70 zip code would probably make sense) or keep averaging down.

But a lower risk approach is, wait.  If we're right and a larger-degree Wave Three is coming then the upside is big.  If we're being too cautious now and in fact $13.70 was the local bottom, then even a plain ol 100% extension of that prior Wave One up - the larger-degree Wave One up - placed at the $13.70 low gets you a price target in the $27 zip code ie. nearly a double from here.  So if the fund does move up in the smaller degree and we do get evidence that $13.70 was the low?  You still have plenty of gains to shoot for.

This name was a successful holding for us in staff personal accounts in 2021-2, we bought well and sold out at $16 in the knowledge that the chart said it could peak at $18; we do plan to play this next move up if it comes.  But for now, we're just waiting.

HOLD rating (ie. we think doing nothing is a smart move here), but watching closely and we'll keep you updated. As usual our Growth Investor Pro service provides real-time coverage of this and other names.

Cestrian Capital Research, Inc - 17 May 2022.

DISCLOSURE: Cestrian Capital Research, Inc staff personal accounts hold no positions in U.UN or SRUUF at the time of publication but may initiate long position(s) in U.UN at any time.