The uranium mining space seems to have found a short term bottom. For now, the sector has stopped falling but that is a very short term look. The key question is what happens mid and long term.
Before looking into that question, let’s first revise the sequence of events in uranium stocks.
Lately, we have seen Uranium stocks falling sharply. We identified 15 points in URA as a major price level as it coincides with secular support. That is the price level which we identified where Uranium stocks have a strong fight between bulls and bears.
In January, we said that Uranium stocks successfully tested their breakout level at 15 points after they officially broke out.
The first sign we spotted was back in November, when we wrote that we observed a very bullish sign in uranium stocks.
So far the sequence of events in the last 4 months.
Going forward, investors are closely watching what happens at 15 points in URA, representing uranium stocks. The chart shows why 15 points is so important. If the uranium space is another text book example of a breakout level becoming support, then uranium stocks will go higher from here, and the sector will flash a huge BUY signal. However, if 15 points gives away, then we could be looking at a false breakout.
Which are the arguments in favor of the bulls?
First, trading volume is still high given current prices. That is not a leading indicator, but it certainly suggests lots of interest in this sector.
Second, according to a study of Meb Faber (source), who has researched what has happened after you buy assets down multiple years in a row: you doubled your returns in the year following three down years for both country stock markets and asset classes. So extended bear markets are followed by strong bull markets. That certainly underpins the bullish story.
