It seems like it was only yesterday when “rare earth” was the trendy investment idea. Well it was not yesterday. Shares of various “rare earth” entities topped out a year and a half ago. They have been in steady decline ever since.
Most of the charts looks the same, but today we are going to focus on Molycorp(MCP). As you can see from the weekly chart below, MCP peaked in April 2011 and have spent the last 17 months going downhill. Even if you had bought shares earlier this summer, you would be sitting on a loss of 40%.
But is a change in direction on the horizon? In recent weeks, trading volume has been unusually heavy. On the one hand, there are many shareholders finally giving up on MCP. And at the same time, alot of hot money from speculators coming in. It is the type of thing you often see at tops and bottoms. It rarely happens in the middle of a trend. But we caution against buying too soon. Yes, we realize that MCP is already up 20% from the August low. The bulls will need some time to turn the tide in their favor, working through the shares hitting the market from “late capitulators” as well as the speculators taking their 20% profits. We do not know where the next low point will be, but probably it will occur well above the lower Bollinger band. So put it on your radar, be patient, and watch the market’s behavior for more clues.