For the past few months traders have had a lot of success targeting the rare earth group for cash flow trades. More recently though, rare earth stocks pulled in, but are now turning back up. Molycorp, Inc. (MCP) is the leader of the group, and when the company announced a secondary offering to fund Phase 2 expansion of its California Pass mine, it gave us an indication that the bottom for rare earth may be in place.
There are 4 stocks in this group that I trade, which are MCP, Rare Earth Resources Ltd. (REE), Avalon Rare Earth Metals Inc. (AVL) and China Shen Zhou Mining & Resources Ltd. (SHZ).
Yesterday, the rare earth stocks took off, with the exception being SHZ. The stock closed higher, but did not get the momentum of the others in the group. Today SHZ is my focus because it has the best pattern. The stock has been lagging since announcing a secondary offering a month or so ago, but It seems to have cleared resistance .
I added back above $7-$7.10 on massive volume, and my first target will be around $8 for the gap fill, at which time I will measure composure of the group and stock. I expect SHZ and other rare earths to make new highs as data has shown increasing demand for rare earth metals at a time when China is cutting exports. My stop on the trade is $6.45.
Disclosure: Long SHZ