Go Nuclear

Adam Feik - INO.com Contributor - Energies

What’s working right now in the energy sector?

I’ll give you 6 ideas in this article.

I track over 100 energy investments in my MarketClub portfolio. My list includes drillers, refiners, shippers, coal, solar, MLPs, and pretty much every other corner of the sector. Today, out of 100+ candidates, only 6 are registering a green Trade Triangle signal for both the long-term and intermediate-term trend. (Green Triangles are a sign of a trend that remains intact and invest-able, although the Triangle system does not purport to capture the exact high or exact low point of any trend).

Here are the 6 diamonds in the rough:

The first two – and this deserves a groan, I admit – are "short" oil funds. I’m not telling you anything you don’t already know to say that oil prices have been plummeting since this summer. As a result, short funds are among the few energy-related investments that have performed well lately... and extremely well, at that. "Short" funds, of course, profit when a market declines, so if you want to bet that oil prices will continue to fall, DDG and DUG continue to display all green Trade Triangles. 

DDG is the ProShares Short Oil & Gas fund, which is designed to deliver one-to-one inverse performance (-1x) compared to oil prices. For a slightly higher-octane version of the same strategy, use DUG, which is the ProShares Ultra-Short Oil & Gas fund. DUG is sold as a -2x, or two-to-one inverse fund. Be advised, both DDG and DUG can be highly volatile, and much of the "easy money" has likely already been made! So keep a sharp eye on either of these investments and/or use tight stop-loss orders.

The next two "in-favor" energy investments are related to uranium. Hence, the title of this article to "go nuclear." Last week, INO.com posted a fantastic interview of Casey Research’s Marin Katusa, author of the new book, The Colder War. In the interview, Katusa touted Uranium Energy Corporation (UEC), which happens to be one of the few energy investments with green Trade Triangles right now. See the interview for some of Katusa’s interesting observations and insights about the company. Caution: Katusa advised being highly selective in the uranium category, and indeed, out of a dozen or so uranium companies on my watchlist, UEC is the only pure uranium play that’s working right now. The second uranium-related investment is not a pure play, but rather a fund that invests mostly utility companies involved in nuclear power generation. The fund is the Market Vectors Uranium + Nuclear Energy ETF (NLR). The fund’s sponsor says the fund’s objective is essentially (paraphrasing) to invest in companies whose long-term strategy is to either derive 50% of their business from uranium or to be substantially involved in nuclear power. Only 2.4% of the fund is invested in companies considered to be part of the energy sector, while over 70% of the fund operates within the utilities sector. While not a pure energy play, NLR does aim to profit from nuclear power, and right now the strategy is working (as evidenced by recent performance).

The other two investments that appear to be working are Enbridge Energy Partners (EEP) and Tesoro (TSO), both of which have somehow managed to buck the powerful downtrend thus far. EEP is in the oil & gas pipelines business. TSO is a refiner. Both are outperforming virtually all their peers since the oil crash began on June 20th. Interestingly, while I do consider both EEP and TSO to be very good companies, I can’t identify a specific reason why they deserve to be holding up as well as they are! Many of their competitors are very solid companies as well, and will likely present good buying opportunities at some point. Right now though, something about EEP and TSO is simply working. Trust the Triangles. Or in other words, trust the market. The market knows best, and stock price movements are often the best available information about which companies deserve your investment dollars. 

Which of these 6 investments should you own?

As Adam Hewison says, "Always invest with the trend." The trend has been with DDG and DUG, undeniably. The other 4 investments also remain in positive trends right now, even despite the carnage all around them. If you choose to invest, know your target and exit strategy in advance (as always), and be sure to follow through on the strategy you set forth in order to protect against losses when the trend changes.

My advice for intermediate- or long-term investors? Be patient. Greater opportunities are likely to emerge, in my view, as a result of the extreme volatility we’ve seen lately. The INO team and I will, of course, be looking to highlight those opportunities each week – including any trend reversal that may materialize. We’d all like to "buy low," and this recent plunge will eventually create attractive opportunities to do so. Again, let the signals tell you when the risk is low enough to enter.

In my article next week, I’ll discuss some of the operative fundamental forces that will drive energy trends into 2015. Until then, I wonder how strong the tax-loss selling headwind will prove to be with energy investments. Will the pressure be powerful enough to prevent any rebound until after the 1st of the year? I must say, it’s not an argument I’m spending much time agonizing over, since almost all energy investments are showing red Trade Triangles right now anyway. The trend is generally not with energy investing yet, other than the 6 investments highlighted herein. In the long-run though, don’t be fooled by the plethora of media reports declaring the "death of the energy super-cycle." Rumors about that death, like Mark Twain’s, are greatly exaggerated. All we need is for everyone to believe it’s over. Then I’m confident we’ll see Trade Triangles – and your brokerage account – turn green again.

Thank you,

Adam Feik
INO.com Contributor - Energies

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

7 thoughts on “Go Nuclear

  1. Uec is rallying on a recomendation by Dr. Kent Moors Energy
    advantage. In many instances the stock will pop then sell
    off as there are no new buyers coming on board to propel
    the stock upward. There may also be some stock loss selling
    in Uec shares prior to Jan 1. I would be cautious on the uranium
    shares especially uec prior to jan 1 but uranium looks like a terrific
    bottom fishing trade in 2015. Thanks Adam!

  2. The dollar (DX) index is above 89.00! That's a crazy level. And it rarely stays long up in that nosebleed area. What's gonna happen when the dollar finally collapses? Your DDG and DUG are going to fold. The trend in crude oil is nearly over. And postulating that there may be "trend" left is a bit irresponsible at this point.

    What you want to be looking for are commodities that are bucking the dollar trend. The grains for one. Time to get long Corn and soybeans. Cotton has bottom. And yes Uranium has jumped in spite of the dollar trend against it. And Live Cattle has finally seen the end if its epic bull (ha) run.

    Per "Go Nuclear" here's a strange topic for ya: Thorium and the negative regulatory link from it to REEs. Thorium is a toxic by-product when it comes to mining. Why? It's a viable resource we should be leveraging. Why isn't the US pursuing Thorium reactors like China and India are? Maybe some of the players in your NLR ETF are tiptoeing into Thorium. Any idea on this?

    1. Yes, the dollar's rally this year has been remarkable. You're also correct that short-oil funds will almost certainly get clobbered if & when the king-dollar trend reverses. I admit I have a bias for usually believing oil will go higher... but that's obviously been a painful position lately. As for whether any such reversal is imminent or not remains unconfirmed. Could it be happening as we speak? It could. But again, as of this moment, for intermediate- and long-term investors, that's certainly unconfirmed. Agreed?

      As for thorium, you sound more educated than I on the topic, but from all I heard it's a good idea to leverage that resource. It sounds very promising on several fronts, and I don't know why US companies aren't pursuing it more. Any ideas? Oh, I also don't know whether any of NLR's holding are actively pursuing thorium energy. I did a quick search and found a Maclean, VA company called Lightbridge (NASDAQ: LTBR), which looks like one you might want to research. They are apparently working with utilities globally to develop thorium power capabilities. I also noticed that Dominion Resources, Southern Nuclear, Duke Energy, and Exelon each have a member on Lightbridge's advisory board. Interesting topic, and one I'll have to study further. I've added LTBR to my watchlist. On first glance, this strikes me as a very long-term, speculative proposition... but hopefully a breakthrough that at some point can help the US achieve energy independence.

      Two more quick notes:

      1) Please take time to read Marin Katusa's interview I referenced in the article. He points out uranium is in an oversupply/underdemand situation right now. Not a good dynamic for going long in uranium, so it's interesting that UEC has been holding up so well. Again, other uranium producers have not been so fortunate. Katusa specifically discusses UEC, so his piece is a good read.

      2) Finally, just as soon as I posted that "only 6" energy investments on my list had positive (green) triangles, a few more have started turning today. Maybe this is the beginning of a bottoming? As I said, I'm closely watching it & will report back by next week sometime.

      Thanks for your comment.

      1. Thanks for your polite reply.

        Here's a useful article about Crude Oil's recent activity. It uses event studies (prolly in Python):

        Per Thorium, that's a loaded topic. With all the political, military, academic and economic influences that comprise a shift to Thorium's use as nuclear reactor fuel it's tough to pinpoint what agenda was responsible for the suppression of the technology. To learn that Thorium's treatment as a toxic waste when mining heavy REEs was confusing to say the least. And that heavy REE mining is ignored because of it was shocking.

        I did read Marin's article. I'm suspicious of Uranium's plunge with regards to the U.S.'s intent to squeeze out any radical country's mining of the resource (with the mind to control it as a nuclear threat). If it became worthless to mine, why bother? But that was just conspiracy conjecture on my part. If yellowcake drops into the low 30's again I could see serious upside from there.

        As an aside I think I've figured out how "trade triangles" work and may post some charts to this affect -- stay tuned.

        1. Thanks for the eidosearch link! Very interesting event studies indeed. I appreciate having those perspectives as another data point. It will be very interesting to see how crude performs this time.

          I look forward to seeing your analysis of trade triangles.

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