Molycorp, Inc. is a rare earth oxide producer in the Western hemisphere and owns a rare earth project outside of China. The company is in development stage. The company focuses to be an integrated producer of rare earth products, including oxides, metals, alloys and magnets. Molycorp’s rare earth products are used in a range of applications, including clean energy technologies, such as hybrid and electric vehicles and wind power turbines; multiple high-tech uses, including fiber optics, lasers and hard disk drives; numerous defense applications, such as guidance and control systems and global positioning systems, and advanced water treatment technology for use in industrial, military and outdoor recreation applications.
Before discussing the potential trading opportunities for Molycorp’s stock, please take a look at the 1-year chart of MCP (Molycorp, Inc.) below with my added notations:
MCP has a very important price level at $40. The $40 level was resistance last year (red), support in the beginning of this year (green), and recently resistance again (red). The stock also seems to have another important level at $45 (purple), has found it’s most recent bottom at $30 (blue), and a very short-term support level at $35 (navy). So, in addition to showing a couple of clear levels of support/resistance, MCP is also showing us that it tends to bounce between each $5 increment, $40 seeming to be the most important right now.
The Tale of the Tape: After breaking below its $40 level and falling to $30, MCP has rallied back up near the $40. A long position could be entered on a pullback to $35 OR on break back above $40, with a stop placed below the level of entry. A short play can also be made at $40, or on a break back below $35, with a stop set above the level of entry.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT