Molycorp Carves A Bottom

Molycorp (MCP), owner of the largest-producing rare-earth mine outside of China,  supplies rare earth metal oxides, metals, alloys and magnets. The company’s products have critical uses in a range high technology products. After a six-fold price increase over nine months following its initial public offering (IPO) in August 2010, Molycorp lost 71% of its value, bottoming in December 2011.

The dramatic rise following its IPO coincided with soaring rare earth metal prices as China, the worlds primary supplier of rare earth metals, announced plans to curb exports of these minerals. Rare earth metal prices softened in 2011 and have leveled-out in recent months, along with Molycorp’s stock price.

On March 9, 2012, Molycorp announced the acquisition of a Canadian rare earth magnet manufacturer, a move toward vertical integration cheered by investors as the stock ramped off its bottom on a surge in volume.

Technically, the stock has formed a constructive five month bottoming pattern and broke out of that pattern on heavy volume at the end of March. The stock is currently testing the breakout area.

From a trading perspective, the overall stock market is in a corrective phase so any new buys should be approached with caution. Nonetheless, Molycorp deserves consideration here and at least a high place on the watch list.

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About jstradingnotes

I spend a lot of time analyzing the economy and securities. The effort has enabled me to generate multi-thousand percent returns on my trading capital over the past twelve years. The next few years offer an incredible opportunity to take outsized gains from the markets. Large structural imbalances in the major western economies will result in enormous market volatility as the imbalances get resolved, offering generational money-making opportunities. The major imbalances are excessive sovereign debt, crazy risk concentration in major banks, and enormous derivative exposure in the financial sector. A systemic shock can easily create a default cascade through the financial system where one failure precipitates another and another and so on. Central banks are very aware of the risks, and they are filling the financial system with liquidity by printing new money, risking massive inflation in a few short years for the United States and Europe. China has 2-3 trillion in dollar exposure, and they would like to have far less for fear of continued currency devaluation (they've lost billions holding dollars as the value erodes). As the size of their holdings prevent them from rapidly liquidating their dollar assets (which includes U.S. treasuries), they are instead spending their dollars on resources (copper mines, rare earth metal mines, oil wells, etc.). Lately they have been accumulating gold assets, perhaps with a view to making the Renminbi convertible into gold and displacing the U.S. dollar as the international reserve currency. Their gold buying is enormous and presents an easy investment thesis: ride the Chinese horse and buy gold and gold stocks. In this blog, I'd like to share some of my trading ideas and insights on the markets as these exciting times unfold.
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