About 20% of the world's energy supply comes from 440 nuclear
power plants, located in 25 countries around the world. About 12%
of these nuclear reactors are in Japan.
As the headlines describe, the devastating earthquake and
tsunami that struck Japan on March 11 triggered a series of
explosions, leading to the partial meltdown of a nuclear plant,
located 150 miles outside of Tokyo. The impact of the meltdown has
spread far beyond Japan, affecting nuclear-power companies
Observers suspected plans for many of the world's 60 new nuclear
plants could be stopped, or at the very least halted, for some time
This week, the Swiss government announced the suspension of
approvals for new nuclear plants. The German government followed
suit. Furthermore, Germany's seven nuclear facilities, built prior
to 1980, will be shut down until at least May. This step leaves the
country with only 10 operating nuclear facilities.
In France -- where 80% of the country's electricity comes from
nuclear power -- the Green Party has called for a referendum on the
future of nuclear power. And even China, which has had big
ambitions for nuclear power-expansion, announced Wednesday, March
16, that it was suspending approvals for plants, pending safety
checks at existing facilities.
In the United States, questions have been raised over how the
Japanese reactor situation will affect President Obama's recent
announcement to facilitate the building of two nuclear plants in
Georgia. With uncertainty looming over the future of nuclear power,
the nuclear industry could be severely hit. [I should note,
however, that my colleague Nathan Slaughter has a different view.
Go here to read his take
One way to trade the potential slowing activity in nuclear power
activity is to take a short position in the
PowerShares Global Nuclear EnergyETF (
. This fund represents 65 global companies involved in the nuclear
With a focus on large-cap firms, the
exchange-traded fund (
includes companies that build reactors as well as utility,
construction, technology, equipment, service provider and fuel
PKN has a high exposure to Japanese securities -- about 25% of
holdings. Japanese electronic producer
is the second-largest holding,accounting for 5.4% of the fund,
behind only French power company
, which is the fund's largest holding, at 8%.
Technically, PKN appears fragile.
Not surprisingly, the fund took a nosedive this trading week,
dropping nearly 20% from a recent two-year high near $22.58 to
While plummeting, PKN catapulted through the
line, which had formed over the past two years. Forming a large
bearish gap on much highervolume than normal, the fund fell through
several important support levels, including the 10-,20-,30- and
40-week moving averages and the lower Bollinger band (displayed as
colored lines on the chart).
With continued uncertainty in the nuclear industry, PKN could
easily fall several more dollars, not finding technical support
until around $15.20.
The indicators --
, Stochastics and
-- are all bearish. The RSI uptrend line, which had been forming
since April 2009, is now broken. RSI is also now below the key 50
juncture and falling.
MACD has given a sell signal, indicated by the black line crossing
below the red line. The MACD histogram is now below zero and
building in negative territory.
Stochastics and Williams %R, both overbought/oversold indicators,
show the fund is no longer overbought. Both indicators have given
Action to Take -->
Given PKN's technically bearish picture combined with a shaky
outlook for the nuclear industry, I am bearish on the fund. Despite
the price decline that already has taken place, the nuclear
industry will likely face more adverse publicity in the near
If the fund's price dropped from current levels to support at
$15.20, traders who established a short position could reap a
return of about 16%. I also recommend a stop-loss at $20.11.
-- Dr. Melvin Pasternak
P.S. -- I don't know if you're aware of this or not, but a
20-year energy agreement between the United States and Russia is
about to expire. The problem is, this deal supplies 10% of
America's electricity. When the Russians refuse to renew the
agreement, the U.S. will face an entirely new kind of energy
crisis. This disruption could send a handful of energy stocks
through the roof. Keep reading…
Disclosure: Neither Melvin Pasternak nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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