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The Meridian Report

A Global Perspective on Energy

Volume 2, Edition 1
“Green” is Back in Style

www.themarkettraders.com

January 10th, 2006

In a recent Meridian Report I noted that our world, including our financial markets, moves in cycles. One theme that many have written off as defunct may now be seeing a comeback or in the parlance of cycle-talk, this theme may have made a cyclical low and may now be on the rebound. The theme I speak of is “green” – as in save the planet, save the environment type of “green”. A quick look at the markets supports the notion that “green” is on the rebound.

The automotive sector has been quietly advancing the “green” way of thinking for several years now. In particular, the Toyoto Prius with its hybrid power train is causing a stir amongst car buyers. The electric motor in the Prius is powered by a rechargeable Nickel-Metal-Hydride battery. Investors interested in following this sector should pay close attention to Energy Conversion Devices (Nasdaq: ENER) and Great Western Minerals (TSXV: GWG). Energy Conversion Devices is making tremendous inroads into the areas of thin-film solar panels and Nickel-Metal-Hydride Batteries. Great Western Minerals is currently well on its way towards developing a deposit of rare earth minerals in Canada’s north. These rare earth minerals are key to the manufacture of batteries and in fact are the so-called “metal” in the expression “Nickel-Metal-Hydride” battery.

China is generally regarded as a giant industrial behemoth charging forward at a rapid pace. While this may be so, believe it or not even the Chinese are aware of the importance of looking after the planet in their quest to industrialize. Instead of seeking to power their economy with traditional fossil fuels, they are building nuclear reactors. Not just any reactors either. The ones being built boast the latest in safety features and operating efficiencies. The chances of a 3-Mile Island or Chernobyl style incident with this next generation of reactor are small indeed. Traders and investors seeking to follow the nuclear story should keep a close watch on Cameco (CCO:TSX, CCJ: NYSE) and Uranium Participation Corporation ( TSX:U). From its operations in Canada, Cameco supplies over 20% of the world’s Uranium needs. Uranium Participation Corp is a unique company in a unique space. Through a joint venture with Denison Mines (TSX: DEN), another Canadian Uranium producer, Uranium Participation has assembled a warehouse full of Uranium. The price of Uranium Participation Stock moves in correlation to changes in the spot price of Uranium.

The green theme is also being championed by the likes of General Electric ( GE: NYSE) CEO Jeffrey Immelt. In 2006 every manager of every GE Business Unit will be responsible for cutting emissions of Carbon Dioxide. By 2012 GE aims to have its greenhouse gas emissions cut to a level that is 1% below its 2004 output. To not take this step and do nothing would mean by 2012, GE’s greenhouse emissions would be 40% above where they are now. So, the “green” efforts by GE are to be commended indeed. To promote emission reduction, GE will be promoting no fewer than 17 clean technologies ranging from hydrogen fuel cells to water purification systems to clean burning locomotive engines. Capex plans call for something like $1.5 billion in R&D by 2010.

Other “green” technologies making advances are wind power and solar power. The IEA predicts that some $1 trillion will find its way into wind and solar developments in the next 25 years. Traders and investors may wish to watch the activities at Evergreen Solar (ESLR: Nasdaq). This 10 year old company manufactures and sells solar power products around the world. The three markets the Company services include wireless power, rural electrification, and grid connected applications.

Lastly I am sure the “green” movement has attained momentum when I see an oil company – the very antithesis of “green” - embracing wind power. Energy giant Talisman (TLM: TSX, NYSE), has now installed windmills on one of its off-shore drill rigs working in the North Sea. The electricity generated is used to power the drilling platform’s operations. In the future we may even see windmills on off-shore platforms even sending power ashore.

“Green” may not be exactly cost competitive with oil & gas at the moment, but if energy prices remain robust going forward I suspect we could see considerable momentum from the current cyclical upturn in “green” technology. Traders and investors take note…. http://themarkettraders.com/themeridianreport.themarkettraders.com/

Energy Conversion Devices - Nasdaq: ENER

Here is a growth story if there ever was one. This weekly chart of Energy Conversion Devices shows a positive DMI crossover way back in July 2005 at the $20 level. Since then the stock has more than doubled. But, take a look at the RSI. Note how in the past few weeks the share price has matched its previous weekly high made back in October 2005, but the RSI has not moved up to confirm this event. Therefore I say this stock could see a round of profit taking soon which could present traders with a buying opportunity. The price could safely fall to the 50 week moving average in the $27 range without violating the uptrend that began with the swing bottom in April 2004. Watch this stock closely and be ready to jump at it when I say so. In the interim, be sure to visit their website at www.ovonic.com.

Great Western Minerals – TSXV: GWG

Perhaps the best way to describe this up and comer is to defer to their website at www.gwmg.ca.

Great Western Minerals Group Ltd.* is a Saskatchewan-based corporation engaged in the acquisition, exploration and development of mining properties hosting strategic, high-value commodities including diamonds, gold and rare earth elements.

The most advanced project is the 100%-owned Hoidas Lake rare earth project in northern Saskatchewan. The rare earths comprise the lanthanide series of elements including lanthanum, cerium, neodymium, praseodymium, samarium, europium, gadolinium and yttrium. In addition to rare earths, the Hoidas Lake mineralization includes significant quantities of scandium, strontium, titanium and phosphate.

These elements are critical to many alternate energy technologies including fuel cells, rechargeable batteries, hydrogen storage and permanent magnets used in electric and electric-hybrid vehicles.


Even though this chart may say Great Western Gold, it is in fact the chart for Great Western Minerals. With the purchase of a metal-hydride manufacturing facility in Detroit now complete I expect this stock will start to move. DMI has now recorded a positive crossover and the RSI is far from showing a top. A challenge of last year’s high of 90 cents is not out of the question. Once again, be sure to visit their website and look at the attention they have been getting.

Cameco – NYSE: CCJ

Cameco is the world’s largest, low-cost uranium producer accounting for 20% of the world’s uranium production. Mining and conversion facilities in North America provide fuel to the western world’s nuclear power plants. Through a partnership, Cameco also generates clean electricity by way of its joint venture in a 1,500 MW from a nuclear facility in Ontario, Canada. Be sure to visit their website at www.cameco.com.

Cameco broke out of a trading range in December 2005 and has gone almost parabolic as investor excitement in Uranium has intensified. I tend to avoid stocks that have gone parabolic so I think it best to wait for Cameco to settle down a bit. As Cameco cools off, I will be watching it and advising subscribers when to take a position.

Denison Mines – TSX: DEN

Denison Mines Inc. is a publicly traded company (DEN-TSX) that is involved in uranium mining and production in Canada. Denison’s principal assets are its interests in the McClean Lake Facility and the Midwest Uranium Project, both of which are located in Northern Saskatchewan.

Denison’s production is through its 22.5% ownership interest in the McClean Lake Joint Venture. The Joint Venture assets include the sixth largest uranium processing facility in the world as measured by production, which is soon to be significantly expanded, and substantial uranium deposits and reserves. Denison is also a 25.17% owner of the Midwest Project, which also contains substantial reserves of uranium.

In 2004, Denison embarked on an ambitious exploration program in Saskatchewan. Currently, Denison is carrying on exploration activities at several properties, including McClean Lake, Midwest, Wheeler River (increasing its 40% interest to 60%), Wolly (earning a 22.5% interest) and Waterfound (14% interest). Denison has also become part of an exploration project in Mongolia in a joint venture with COGEMA.

The above weekly chart tells the complete story. Note how the weekly DMI is on the cusp of registering a positive crossover. Should it follow through and do so, the 50 week moving average of $16.36 will be decisively left behind. The door will then be open for a possible re-test of year ago highs at $20.

Uranium Participation – TSX: U

At its very simplest, Uranium Participation Corp is a collection of Uranium fuel sitting in a warehouse. It is the closest thing an investor can come to if the desire is to play the spot price of Uranium fuel. The inventory of Uranium is administered by the company described above – Denison Mines.

Share price has had a powerful surge of late as investor’s seemingly had an insatiable appetite for anything Uranium. I would not be surprised to see a bull-pennant formation develop from here followed by a run at previous highs in the $7.25 range.

General Electric – NYSE: GE

It would take an entire newsletter to describe General Electric in a proper fashion. If there ever was a company that touches almost all facets of our daily lives it is GE.

A fascinating chart for sure. After making a double bottom in September – October 2005, GE registered a gap up in mid-November. Since then the share price has not back-tracked to fill the gap so a rather large island has developed. The DMI looks set to register a positive crossover and the RSI has room to move higher. So at this point it appears the island may hold intact. Buy GE if the DMI completes its positive crossover but run a stop at $34.50. Raise the stop as GE moves higher.

Evergreen Solar – Nasdaq : ESLR

It would take an entire newsletter to describe General Electric in a proper fashion. If there ever was a company that touches almost all facets of our daily lives it is GE.

This one looks to be a good trading candidate with plenty of swings in price. At this time of writing, the DMI is recording a negative situation following a share price reversal from over $12. I shall be watching the share price intently over the next weeks. As soon as I see a positive DMI crossover I shall be alerting subscribers.

Talisman: TSX, NYSE - TLM

Talisman is the leading deep-gas explorer / producer in Western Canada, the second largest producer in the UK North Sea and a significant gas player in Indonesia. A visit to the company website at www.talisman-energy.com is a worthwhile exercise.

Talisman’s share price has performed extraordinarily well over the past 12 months. At this time of writing, technical indicators are still positive but a consolidation or pullback would not be out of the question after the recent increase in price. If company management has the foresight to use wind power to run the facilities on an off-shore drilling platform, I say that same group of managers is capable of good and great things that will see continued earnings and cash flow growth. This is one stock to add to your radar screen. For now, let it consolidate and maybe even correct a bit. I shall be advising when to take a trading position.

Crude Oil – February Futures

In my recent Meridian Report on Cycles, I specifically noted :

This chart tells us that we made a cycle top in August (strange how a cycle top came in right as the Gulf Coast was getting pounded by Hurricanes.) If this cycle spacing repeats itself, we should see another cycle top in Crude Oil in the late January period.

Shortly after penning these remarks, Crude Oil entered a period of weakness and even broke its 200 day moving average, leaving me with serious doubts about my cycle prediction. However, much to my surprise, we are now seeing some very robust Crude prices. Market cycles are truly amazing things that never cease to amaze me.

The next area of resistance on the charts is $67.50. What could well get us there would be an event such as the eventual death of Israeli PM, Arial Sharon. At this time of writing, Mr. Sharon lies gravely ill and could die at any time. His passing would throw into question the whole Middle East peace process. His passing would surely invoke a fresh round of violence in the Middle East and thus higher Oil prices. Like I said, the correlation of world events to cycle tops sometimes leaves me in awe.

Natural Gas – February Contract

Now here is a sickening chart. Natural Gas has seemingly fallen on a very sharp sword as warm weather has spread across North America. The RSI is now entering oversold territory but we could well have a ways to fall yet before the bottom is registered. Only a good shot of cold weather will get Natural Gas back up into its $12-$15 previous trading range.

Closed Out Positions

Exit Date Entity P/C Buy/Sell Price Net Result
Dec 10 Grey Wolf Sell – Stop Out $8.00 +$500
Dec 22 Crude Oil Put Expired +$700

Open Positions

Exit Date Entity Ticker P/C B/S Month Entry Price
Oct 12/05 Nordic TSXV:NOG Buy $0.38
Oct 28/05 Grant Prideco NY:GPR Buy $37.50
Oct 28/05 BJ Services NY: BJS Buy $34.40
Nov 11 Alberta Clipper TSX: ACN Buy $3.85
Nov 11 Mahalo Energy TSX: CBM Buy $5.40
Nov 11 Ember Resources TSX: EBR Buy $5.40
Nov 21 Western Lakota TSX: WLE Buy $13.80
Jan 7 Great Western Minerals TSXV:GWG Buy $0.48
Dec 20 Uranium Participation TSX: U Buy $6.25
Dec 30 Encana TSX: ECA Buy $52

  • Place a STOP behind BJ Services at $36.70
  • Place a STOP behind Grant Prideco at $43.50
  • Place a STOP behind Mahalo at $6.25
  • Place a STOP behind Ember Resources at $6.40
  • Place a STOP behind Western Lakota at $16.00

Energy is the lifeblood and backbone of an economy. With it, an economy can thrive and grow. Without it, an economy will grind to a halt. This rather stark reality forms the basis for the bi-weekly Meridian Report produced by Meridian – a well connected, big picture thinker and market trader.

Meridian sincerely believes in the months and years to come investors will enjoy serious opportunities to profit from activity in this sector so vital to the future of the North American economy. Every 2 weeks, the Meridian Report will provide subscribers with an update on developments in the energy sector, insight into trading opportunities in energy related Commodity Futures and Options and a technical examination of some energy related stocks poised to deliver profitable trading opportunities. These energy related stocks could be in oil & gas producing companies, oil well service operations, coal mining companies, wind power generation firms or even Uranium mining companies. The vast majority of these stock picks trade on US markets but expect to see some Canadian picks at well. Whatever the pick, the underlying theme will be energy, energy, energy...

The information contained in this report represents an opinion on the market and is a reflection of conditions at the time of its publication. Readers entering into positions based on information outlined in this report should make certain these recommendations meet with their personal risk tolerance levels and investment objectives. This report is derived from information from sources believed to be reliable but no independent verification has been made as to its accuracy or completeness. Any reproduction of this report in part or in whole without the express consent of Meridian is strictly prohibited.


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