The Stock: Cameco Corp. . Recent close: $30.08.
Trend: Uranium prices have rebounded in the past month and are now about $51 (U.S.) per pound. That's far below its high of $136 per pound in June, 2007, but a hopeful sign of improving market conditions. The smallest hint of a global economic recovery has positive reverberations in all materials sectors, but the demand for uranium is fuelled by the jostling for uranium supplies and global mining assets. Economies need stable and secure sources of energy.
Recent market activity in uranium stocks alerts investors to trading opportunities in this important industry. Although last week many of these stocks were down, uranium share prices have advanced significantly with the price of uranium. Many of the Toronto Stock Exchange-listed uranium miners have been tagged with Stock Trends high volume indicators and have turned Stock Trends Bullish (the 13-week moving average is above the 40-week moving average) in recent weeks.
This building price momentum (a term referring to the snowballing type of effect when prices advance over a period of time) and transition to a positive long-term trend makes the uranium sector a compelling trade for investors looking to add to their materials sector holdings.
The Trade: Although there are a number of attractive small capitalization uranium plays, and investors can consider using exchange-traded funds like Uranium Participation Corp. or Market Vectors Nuclear Energy ETF as vehicles for uranium exposure. But industry giant Cameco Corp. is reawakening. Its stock had been Stock Trends Bearish for most of the last two years as the company struggled with its operations and the price of uranium dropped. The current Bullish Crossover marking a new Stock Trends Bullish trend offers investors an entry signal for Cameco as the uranium sector heats up again.
The Upside: The recent move by Cameco to its current price has been propelled by hints of a pending deal with China to supply uranium for its expanding nuclear industry, as well as improved stock market conditions. At the end of April Cameco moved through $25, a resistance level that sent the stock retreating early in the year. Although Cameco's trading activity in May was not strong, evidence of added investor interest in the uranium sector going forward should help propel the stock through $30 to the $40 level. Investors buying Cameco now are betting first on rising uranium prices, and second on the company's prospect of overcoming problems that have affected its producing mining assets. Technical traders understand the importance of those factors, but their measure of Cameco as a potential trade is determined by how the stock advances through price resistance. Further share price advances look promising.
The Downside: On a short-term basis, Cameco is likely overbought - investors can expect the current advance to stall around the $30 level, and potentially pull back. The intermediate trend line (13-week moving average) has yet to develop enough to offer a proper support for the stock price, so investors buying now should look to exit this trade if the stock drops back below $25 - the price level that triggered our current technical interest in Cameco. It is important to have an exit plan before buying any stock.
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to