So What's Going on With Uranium Stocks?

Why have uranium stocks turned into the doormats of natural resources?

Here's a chart that I find disappointing, to say the least. It' s a chart of the Nuclear Energy ETF ....
There is a big difference between breaking down and threatening to break down -- as Mark Twain might say, it's the difference between lightning and a lightning bug. But the fact is, uranium stocks are underperforming the natural resource sector -- badly. They've been this way since early last month. Now we have to figure out if it's going to get worse.

First, let's look at Canada's uranium stock fund ...

I'd call that one mixed. Finally, the Uranium Participation Corp, which holds physical uranium, sort of like GLD holds gold.

This looks pretty bearish to me, with an old uptrend acting as overhead resistance. Okay, we've seen the technical picture. How about news? Here are a few headlines ...


Uranium demand to rocket
Cameco says flooding at Rabbit Lake Mine will delay restart until 2008
Queensland Uranium: Don't Hold Your Breath
Russia, China Agree on Nuclear Deals

These all seem like pretty bullish stories. There is ONE story that may be interepreted by the market as not bullish ...

U.S., Russia Agree on Uranium Shipments After 2013

Dec. 4 (Bloomberg) -- The U.S., the world's largest nuclear- power producer, reached an accord with Russia that will ensure uranium supplies beyond 2013, when an agreement ends that has governed shipments for the past 15 years.

(snip) ...

The new agreement allows Russia to start exports in 2011 with 16.6 tons of uranium, according to the draft. That's less than the annual consumption of a 1,000-megawatt reactor. By 2014, the quota would rise to 485 tons. That would be equal to a fifth of the U.S. market, according to estimates by industry consulting company Denver-based TradeTech LLP.

Maybe this is making the big money turn negative? I don't really see why. The Russians will be able to sell uranium into the US ... at market prices. And Russia has a hugely ambitious nuclear power program of its own -- planning to build 26 new plants by 2030. Holy moly! In other words, Russia may not have the extra uranium to export.

Maybe what is hurting uranium stocks -- many of which are small explorer stocks -- is the credit squeeze. You've heard the stories:

The market for commercial paper, a sort of IOU that companies rely on to raise money for short periods of time, froze up in August. The problems facing the market have eased, but outstanding volume remains severely depressed.

Moody's, citing "deteriorating credit and other market conditions," recently downgraded or placed on review about $130 billion of debt issued by SIVs.

Furthermore, there is about $500 billion of adjustable-rate home loans due to reset to a higher interest rate next year.

But it's not just the smaller stocks that are getting hit. Mid-sized producers including Dennison, Paladin and Uranium One have all taken their lumps.

It's usually when I start to feel bad about an investment that it really turns around. I hope that's the case with uranium.

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