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Summary URA share price doesn’t reflect uranium price development. URA is much more impacted by the overall energy sector sentiment over the last couple of months. Although uranium price increased by 9% since May, URA declined by 30% over the same time period. URA is useless for short term uranium investors and speculators right now, although it provides exposure to the uranium market for long term investors. The Global X Uranium ETF (NYSEARCA: URA ) reached a new historical low of $6.75 per share in late September. Although the share price recovered to $8.01, it is down almost 30% year-to-date. A bigger part of the decline was recorded during the June-September period when URA declined by more than 40%. The important thing is that URA experienced a significant decline while uranium prices were in a side-trend. Moreover, uranium prices have been in an uptrend since May. During this uptrend, uranium’s price increased by approximately 9%. URA’s share price declined by 30% over the same time period. Readers should note that URA doesn’t invest directly in uranium, it holds shares of uranium producers and explorers. Logic says that as uranium price grows, share prices of uranium producers and explorers should follow. But the recent developments show that this relation has been disturbed. Source: futures.tradingcharts.com The divergence between URA and uranium prices has been enormous over the last couple of months. The coefficient of correlation between the URA share price and uranium futures price for the last 5 months (May 11 – October 15) is -0.423, which is a surprisingly high level of negative correlation. The chart below shows the 10-day and 40-day moving correlations between URA and uranium prices. The chart shows that the correlation is highly unstable and that there are some long time periods of negative correlation. Moreover, the 10-day moving correlation approached extremely high levels of negative correlation close to the -1 level twice over the last 5 months. Source: Own processing, using data of Yahoo Finance and futures.tradingcharts.com The chart below shows 40-day moving correlations between URA and oil prices (represented by the United States Oil ETF (NYSEARCA: USO )), energy sector (represented by the Vanguard Energy ETF (NYSEARCA: VDE )) and S&P 500. 40 trading days equal approximately 2 calendar months. As the analysis shows, URA is strongly correlated with VDE. The moving correlation between URA and VDE is far more stable compared to URA-USO and URA-S&P 500 correlations. Especially over the last 5 months the URA-VDE correlation was very stable; it moved in the 0.8 – 1.0 range. There was much higher correlation between URA and VDE and between URA and USO than between URA and uranium prices over the last couple of months. Source: Own processing, using data of Yahoo Finance The data confirm that share prices of uranium producers are heavily impacted by the overall energy sector sentiment. The uranium prices don’t affect URA share price as much as they should. The chart below shows share price development of URA and VDE over the last three months. The similarity of the two price curves is striking. This situation will change and share prices of companies from the uranium industry and URA’s share price will start to reflect uranium price development again, but it is hard to predict when the normalization will happen. For now, the overall energy sector sentiment is the main factor affecting share prices of companies from the uranium industry. Conclusion Over the last couple of months, URA’s share price hasn’t reflected uranium market developments. There is actually a relatively high level of negative correlation between URA share price and uranium futures price. URA is much more impacted by the overall sentiment in the energy sector than by uranium prices. It means that it is useless for the uranium investors right now. If uranium prices increase, it will be reflected by share prices of uranium producers and explorers and by URA in the end, but it is questionable how long it will take for the relations to normalize once again. URA still provides exposure to the uranium market for long term investors, but it is useless for investors with short time horizon and for uranium market speculators right now. Scalper1 News
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