ARE RARE EARTHS A GOOD BUY HERE?

I had a discussion about the rare earth elements and the ETF for those firms (REMX).  These firms have all clearly had great bounces and REMX is actually now in an upward channel.  Upper resistance in the upper channel is $26.40, if we charge through there we could see $27.00 quite easily. 

If REMX bounces around the channel top and heads back down we could see a move to $25.00.
While the purchase of REMX gives you exposure to many rare earth metal miners, most folks that are in this trade aren't in it for a 5% move, they want more potential for upside and don't mind the volatility.  Let's look at another option here for some rare earth dynamite.

REMX

MCP
While REMX looks like a fine set up that is still bullish, please view MCP (Molycorp).  MCP has rocketed off a low around $51.50 that was posted almost 10 days ago!  Wow!  Just observing this move makes we want to hold off on buying into that, expecting some sort of slow down and retracement.  The bulls will need to observe $62.00 closely.  If MCP can powerfully move through that resistance level then a move to $66 or even $71 could be at hand.  Those that feel like the stock needs a breather could take a short here and work for a move back down to $57.50.

The bottom line here is that if the overall macro picture continues in the same vein of a stronger Euro and weaker dollar, we'll have the underpinnings of a sizable move in MCP.  If for some reason reality wakes from its 2 year slumber and the USD drives higher, MCP could face substantial headwinds along with the rest of the equity markets and commodity markets.   

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

MCP CHARTS - LONG OR SHORT?

Dr. Strangeglove asked for a perspective on MCP so here it is;

1 Yr Daily on MCP

Also here is a view of the 1 Year Weekly on MCP

GOATMUG

RARE EARTH CORRECTION OR RARE EARTH REALITY?

On January 6th of this year I posted an article called MCP BREAKDOWN about the craziness of the valuation of a company in a "hot" sector.  Molycorp (MCP) has been the darling of Wall Street receiving loads of hype and a tremendous amount of attention.  A perfect storm has developed as the company is exploiting a space where there is real need in terms of the product that they intend to mine and geopolitical issues related to the supply that is already available in the world.  Back in January and the preceding months China had taken overt actions to limit the amount of rare earth metals they were going to sell on the world market.  Obviously the threats of controls jacked up prices and also pushed stock prices of those mining companies through the roof.

As we all know, investing is about anticipating the next move, not just catching the one that is in play today.  If you are not looking forward, you will end up catching the tail end of a rally only to be left holding the bag.  (Ask buyers of silver at $48.00 how that feels just one week later).  Is the "anticipation effect" enough to justify the valuation of MCP where it is?
I'm not sure is the clear answer, but everything in me says no.  Recall in the post that I discussed how revenues were expected to be $15 Million for the year and the valuation of the company was close to $5 Billion?  It is great to see that since that time revenues have increased to $35 Million, but of course the valuation of the company is even greater now that the stock has traded almost $20.00 higher.  Now this post is a bit late to the party since MCP is now trading around $63.00 a share, but it is still noteworthy because that price level is still about $8.00 greater than when I called it overvalued in the first place! 

Who knows what the future will bring, but one thing experience has taught me is that companies that have rise fast and furiously often produce situations where obscene valuations don't match the hope and speculation about future growth.  More often, these situations usually don't end well for the stock holder.

Take a look at the chart and notice there is some weak support at $63 where it has bounced as I finish this note, however, the bottom of this ascending channel could take MCP down to the $50 area.

Be Careful!

GOATMUG 

MCP BREAKDOWN - RARE EARTH MELTDOWN

Just wanted to post this picture and follow up from the other day's post on the rare earth gravy train.  Unlike what our government has tried to make us believe, parabolic moves upward often end up rather nasty.  Perhaps this move in the rare earths has some predictive powers on what the broader market might see in the back half of 2011.

I'm pretty sure that I'd be short MCP here now that a sell off has begun.  Now hear me clearly, this may come back to the high thirties and stabilize which frankly would be good for the stock and those that are shorting.  I think I agree with the perspective that rare earth miners could do well for the next year or two, but a 100% move on no real performance?  Remember, MCP is valued at $5 Billion and has $15 million in annual revenues......... not typically the type of valuation that is deserved.

SHORT IT!

BE VERY CAREFUL!

GOATMUG

RARE EARTH? HYPE OR THE REAL DEAL?

RARE EARTH METALS -

I haven't received any emails about these yet, but I fully expect to start getting them if MCP rips off another monster day.

I watch about six or seven of these firms daily including a few of the ETFs that have recently been released.  I have not held a position in these, and don't really intend to as of this writing.

Yes, the rare earth metals firms are shooting higher, but that doesn't mean that we need to board that train.  Especially don't pull the trigger and buy MCP!  Look at its revenues!  Look at its market cap!  This company is now valued at $5 Billion and has revenues as of September 2010 quarter end of $15 million!  While it isn't quite Facebook, it certainly is an internet valuation.

Ok, enough said, do your own homework, but I find it very hard to believe that that is the best choice out there.  Could rare earth miners be a good investment?  Yes---- last month and last year.  I'm not so sure about two years from now.

Flip through these slides for a little more information. Essentially what they are saying is that China has a monopoly on these now, but longer term prices will come down as their grip on supply will lessen.




http://www.http//www.businessinsider.com/what-the-rare-earth-bulls-dont-want-you-to-realize-2011-1#chinas-monopoly-is-fragile-1

Be Careful!

GOATMUG