RBY and MCP hit my buy screen

An approach I have been taking with some fantastic results is to buy calls on miners that hit my version of the Elders impulse pattern buy trigger.  Yesterday GOLD hit it, today RBY, AEM, and MCP hit it.

I buy one strike up and one month out, set a stop and let it rip.  Move to break even as practical and then manage to your profit and risk tolerance. April 5 (ITM, low price stock), April 75 (I am already in it for March, and will roll to April), and April 50.

My view is the gold miners need to play catch up.  Enjoy.

Moly Crunch

In five business days, the insiders for MolyCorp are allowed to sell their shares to the public, and having a company with no near term earnings prospects, a pricing model controlled by your competitors, selling for over 6 times book value, and a stock that is 300% of the IPO price, if you were an insider hedge fund, or executive, would you sell?

Now that the fever has broken on this stock, I am expecting at least a move back to the bottom of the channel.  I am short via Feb 55 puts, and I am also short REE Feb 16 puts.  I acquired and completed my purchases last week.  Why REE?  Well when folks start bailing out of MolyCorp, they are going to bail out of the ETF for Rare Earths, and REE will fall in simpatico.

Enjoy, and join me on the wild side  :-)


http://www.arum-geld-gold.blogspot.com/

Read Barrons and WSJ this Weekend

For me at least, this weekends Barrons and WSJ opined on many sectors/areas of interest for me; Extreme exuberance, low volatility, rare earths, China's oil and gas industry, solar inverters and wind energy/components.  I have also recently posted my concerns in the area of rare earths, solar energy and China oil and gas, but a new name came up that I have traded in the past, American Superconductor.

American Superconductor relies on one, yes one Chinese supplier for 80% of their revenue.  That company is Sinovel, and in their latest filings they reported production vastly outstripping sales and wind energy farms sitting idle in China because they are not connected to the grid. 

If you are long this stock take heed, but these articles are speaking some larger truths, we have some serious imbalances forming due to the nature of how the Chinese manage their economy and the reliance some companies fortunes are tied to them (MCP, REE, AMSC), and if we build it, they will come mentality that is creating excess inventories in some hot industries that rely on Government largess to grow (PWER).  Power One's margins are twice that of the largest Inverter company SMA, and inverter prices are expected to fall up to 20% next year into the teeth of falling subsidies.  This is hardly a growth story for a growth stock.

Finally, the WSJ noted that margin is at extreme levels ($300 billion) and every time it reaches these levels a significant retracement occurs.  Also of note is the use of leveraged ETF buying on top of the use of margin, that is a recipe for disaster.

Be careful out there.

Bubbleium - A New Rare Earth

Rare earth's are all the rage these days, thanks to China.  Everywhere you read, you hear China is going to corner the market and bring Western Civilization to its knees.  Although it is pretty shortsighted allowing China to control 97% of the production, all is not what it appears.  First some facts:

• The rare earth marketplace is $2 billion per year.
• The anticipated growth rate for the rare earth markets is speculated to be 9% per year.
• The United States requires approximately 5% of the metal prodution as raw materials for domestic manufacturing.

• The military see no shortages in rare earth's. From Bloomberg last week.  "The U.S. Defense Department has concluded that China’s monopoly on rare-earth materials, used in military hardware such as missile guidance and radar systems, poses no threat to national security, according to a person familiar with a year-long study by the Pentagon."
• There are no export controls on the sale of value added products from China, made with these materials.
• By 2012-13, The Lynas mine in Australia will be producing, and it is likely that MolyCorp will be, as well.
• The Market capitalization of Molycorp (MCP) is $2.6 billion, and Rare element Resources (REE) is $266 million. Lynas Corp (LYC:AU) $2.4 billion.
• The Market Cap of all Rare Earth companies are $10 billion.
• Annualized stock price appreciation since mid August for REE and MCP is 1,200%
• Molycorp needs to secure additional financing equal to its original investment of $250 million.

Based on the above facts, this is a bubble, market caps exceed the entire industry annual production by 5x. These mines will not have any pricing power once they are up and running. Remember, China can control the price of these metals downward, as well as upwards.

I sold my position in REE last week and have no intention of buying Molycorp, until they have completed their dilutive follow-on offerings and the insider lock up periods end.  I will evaluate them, then.

This is a rollercoaster I do not wish to ride.