Is Uranium One Hot To Trot?

08/22/12 08:00:15 AM

by Matt Blackman

Since the nuclear power plant disaster in Japan, uranium stocks have taken a beating. But here is one stock that looks poised to run, especially if the seasonal lift comes into play.

Security: UUU-TO
Position: Accumulate

Uranium One (TSE:UUU) is a Canadian materials stock that has a habit of losing money if you're into buy & hold. According to EquityClock.com, the buy & hold return for the stock over the past 10 years was a dreadful -32.9%.

But this stock is also a good example of how traders can still make good money on a stock that has had some really bad months. In Figure 1, we see the seasonality of UUU showing strength from the first week in January to mid-February, another period of strength from mid-April to the end of May, and a big rise from mid-August to the end of the year.

FIGURE 1: UUU. Composite chart showing seasonal performance for Uranium One over the 12 years ended 12/21/2009.

Graphic provided by: EquityClock.com.

So how would the seasonal UUU trader have done had he or she timed the market correctly? According to EquityClock.com analysis, the trader who bought the stock every year on August 5 and sold the following February 7 would have enjoyed a total return of more than 970% over the last 10 years. The stock made money in six of those 10 years.

For the more conservatively minded, an entry date of December 6 and exit on January 14 produced an average return of 18.3% per year (total return 183.3%) with gains in nine out of 10 periods. See Figure 2.

FIGURE 2: UUU, DAILY. UUU-TO shows how the stock has dropped by more than 60% since early 2011 near its three-year low.

Graphic provided by: Freestockcharts.com.

Technically, the stock looks like it's getting ready to break above its medium-term downtrend resistance line. One way to play it would be to buy the stock when it breaks out, assuming it does so on above-average volume, and use the downsloping line as the initial exit, then ratcheting up the stop-loss as the stock moves higher.

This stock has had a habit of being very volatile, so it's not for the faint of nerve. But if nuclear power has any sort of positive future, this could be one good way to play this sector.

Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

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Is Uranium One Hot To Trot?

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