SIACharts Logo

Commentary >

Sprott Physical Uranium Trust (U.UN.TO)  & iShares S&P/TSX Completion Index ETF (XMD.TO)

It has been a somewhat choppy month in the equity markets after a very impressive first quarter of the year. In the month of April, major indices have pulled back with the S&P 500 losing -4.16% in April, while the Dow Jones Industrial Average lost 3.75%, the Nasdaq losing -4.41%, TSX Composite lost -2.04% and the Russell 2000 losing -5.55% over the month. We are now traditionally entering the weaker period of the year for the equity markets as we wait to see if the “sell in May and go away” theme takes hold this year or if this being a US Election Year whether the May theme decides to take a break this time around. In the latest Fed meeting, Chair Powell held interest rates steady as expected. He also mentioned that there has been a lack of further progress in reaching the committee’s 2% inflation objective, potentially implying that interest rates may remain elevated for longer than expected but it is unlikely the next policy move would be a hike. The FOMC also said that it will slow the pace of the runoff in its Treasury securities holdings, raising the cap, but it remains committed to bringing inflation down to its 2% goal. Powell commented that Job gains have remained strong, the unemployment rate has remained low, and they are prepared to maintain the current target range for the federal funds rate as long as appropriate. It has been a data heavy week thus far for economic data points. Wednesday, US ISM Manufacturing PMI and latest JOLTS number both surprised on the downside of expectations. The ISM Manufacturing PMI fell to 49.2 in April, down from 50.3 previously and below the consensus for a reading of 50.0, echoing the earlier released S&P Global PMI survey suggesting activity in the industrial sector contracted last month. US construction spending declined by 0.2% in March, compared with a 0.3% increase that was expected. On the Jobs front, US job openings fell to 8.488 million in March, according to the Bureau of Labor Statistics, lower than the 8.690 million openings which was expected and down from the 8.813 million openings reported in February. However, the US ADP number came in better than expected with employment rising by 192,000 jobs better than the consensus of 179,000 expected.

In commodity news, US crude oil storage, including those in the Strategic Petroleum Reserve, rose by 7.9 million barrels in the week ended April 26 following a decrease of 5.6 million barrels in the previous week. Other economic data points scheduled for later this week are the Service PMI and US nonfarm payrolls tomorrow. Since the Commodity Asset Class and the Canadian Equity asset class has risen to the 3rd and

2nd spot respectively in SIA’s Asset Class Rank list last week, in this edition of the Equity Leaders Weekly, we are going to look at Uranium by looking at the Sprott Physical Uranium Trust (U.UN.TO) as well as the TSX Completion Index (by looking at the iShares S&P/TSX Completion Index ETF) which is essentially the TSX Composite Index minus the TSX 60 index reflecting more of a mid cap nature within the Canadian market.

Sprott Physical Uranium Trust (U.UN.TO) 

It seems like there is a renaissance brewing in the nuclear industry as the price of uranium has almost tripled over the past 3 years. As such, the sentiment among uranium is one of growing optimism as there is an expectation of a further recovery in uranium prices in 2024. Optimism stems from several developed countries are extending the lifespan of existing nuclear power plants as well as investing in new construction. With the ongoing Energy crisis materializing in some parts of the world as well the world’s growing desire and need for reliable, low carbon power sources, nuclear energy (and subsequently uranium) is gaining popularity once again.Countries that have announced plans to expand their nuclear power programs include Japan, France, South Korea, UK, United States, and Germany. From a supply and demand landscape, demand is expected to increase significantly in the coming years while supply remains tight. Today, supply-demand dynamics show 190 million pounds of uranium is consumed annually while only 130 million pounds are extracted from the ground which is creating a supply deficit. This supply-demand imbalance is creating upward pressure on prices. There are also recent discussions from the US that the Biden administration is considering an executive order to ban Russian imports of enriched uranium. Analysts close to the Uranium industry reported that replacing this supply from Russia could be a challenge and is poised to raise the costs of enriched uranium by as much as 20% possibly providing a further boost in the Uranium pricing.In looking at the attached point and Figure chart of Sprott Physical Uranium Trust (U.UN.TO), we see the bottom of the Uranium prices in July of 2021 followed by a very strong move upwards in September of that year. Then the shares consolidated sideways for the better part of 2 years up until August of last year. Most recently, in looking at the trend of U.UN.TO, we see beginning last August, a consistent pattern of higher highs and higher lows indicating it has entered accumulation phase eventually topping out at the $33.00 area earlier this year in February. A pullback materialized before finding its footing twice in March at the $26.05 level.

Now we see a rising column of X’s materialize in April with a pullback to its 3-box reversal level of $ 27.65 which is its near-term support level. Below that, next level of support is at the $26.05 where it found its footing in March. To the upside, resistance is at the recent high of $30.52 and, above that, a zone of $33.04 and $34.37 where previous highs cluster. With a bullish SMAX score of 7 out of 10, U.UN.TO is showing strength against all the asset classes.

Keep up to date on the latest financial market news.

Receive a daily newsletter with stock highlights, ETF rankings, weekly market focus and others.