Uranium - the momentum play getting all the attention

I stop well short of saying ‘memes’ as many of the plays we see have genuine fundamentals backing the bullish flow, and uranium itself has a solid investment case, with the market in a structural deficit and the cost curves of many producers at levels where the uranium price would have to really run further for producers to ramp up production.

As mentioned yesterday, The Sprott Trust has bought some 25 million pounds of physical uranium since July and the fact the fund trades at a premium to net asset value installs a belief from the market that more purchases are to come.

Naturally in this environment, the uranium spot price has rallied over 20% since mid-August and sits at multi-year highs.

A number of small-cap plays got seriously bid-up yesterday, names like Toro Energy and Peninsula Energy were up 20% and 31.8% respectively. However, in our universe, the URA ETF (traded on MT5) is the best play here and that has been getting attention. Talk on social media platforms Twitter and Wall Street Bets has ramped up and uranium plays are getting the attention once reserved for GameStop (GME) and AMC – One sub-Reddit thread posing the question “A GME like opportunity in uranium?” – I haven’t read the thread but once again traders are drawn to the fact that we’re seeing big moves and elevated expected returns. This is about momentum more than anything.

Another post named “Uranium: Start of a commodity supercycle” has got a bit of attention and covers the macro angle of uranium as a developing energy thematic. If there was a deeper options market in Australia, I am sure you’d be seeing traders buying out-of-money calls on these names and driving market makers to buy the underlying stock to hedge their delta – such as we saw in GME and AMC.

Global X Uranium ETF (URA.P)

(Source: Tradingview - Past performance is not indicative of future performance.)

So uranium is the hot play of the day, but has it run too far and due a breather? The URA ETF pushed into $28.44 taking the gains seen since the low print on 23 August to 65% - we’ve seen price close higher in 12 of the last 15 sessions and a number of technical indicators are looking very stretched – although what is stretched can stay so for a while – this is a misconception of oscillators such as the RSI.

The volume traded in the URA ETF was incredible at 4.64m shares traded – more than 2.7x the 15-day average – is this a capitulation move, or is there more to come? Personally, I don’t like to short any market that closes higher on record volume, but if we look at the intra-day tape, price traded to $28.44, reversed and closed on its low of $27.17. Hardly a bullish sign.

A break below Friday’s high of $26.76 could see profit takers emerge for a quick move to the breakout zone of $25.10. So there may be an opportunity to trade this from the short side for a quick move, but if this space is truly to become a sustained momentum play then hold times on shorts will be brief.

Apple Inc (AAPL.O)

(Source: Tradingview - Past performance is not indicative of future performance.)

Uranium aside, put Apple on the radar – While shares closed +0.4%, we’ve seen sellers from the recent highs of $157.26 with investors reacting to news Apple may need to change the way they operate its App Store, directing customers outside of its internal payment channel resulting in Apple missing its cut of the transaction. This promises to a fairly drawn-out affair, but near-term and in upcoming trade we get Apple’s Annual Event – this is always a great event for the tech heads, but so much has been speculated on that unless we get something of a surprise then it shouldn’t be a huge volatility event.

It seems the main focus will be on the iPhone 13 and the attraction for those looking to upgrade from models 11 and before. The new ‘nice to have’ feature is expected to be a satellite feature, due in 2022, but that seems incredibly niche. The Series 7 watch will also be unveiled, with a faster processor and larger screen, but it sounds unlikely to have a major design change.

Average selling prices will be closely watched, perhaps even for the macro watchers as it feeds into the inflation debate. A key point given we get US CPI at 22:30 AEST and that could jolt some life into markets if we see core inflation printing 4.4% or above.