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Contrarian, macro, hedge fund manager, Emerging Markets
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Summary

  • Molycorp is down over 95% from 2011 highs.
  • Outcome for MCP is likely either bankruptcy or major turnaround.
  • Rare earth minerals are not that rare, but there are geopolitical reasons to prevent Molycorp from failing.

Molycorp (NYSE:MCP) has fallen below $3 a share, and is setting up for at least tradeable bounce of 20-50%. The company has cash on hand to last at least four quarters, so bankruptcy is not an immediate risk. Molycorp's mine is the only active rare earth mine in the US, and one of the few outside of China gives a geopolitical imperative to keep the company alive. More details about MCP are explained in the video below, but I also discuss how technically oversold the stock currently is and some catalysts that may drive rare earth mineral prices higher.

With the high risk, high reward setup for this stock, we recommend traders to define their risk in this trade, either by buying a small amount of shares with a high stop ($1.50+ per share) or through call options.

Source: Molycorp- Bullish Or Bearish?

Additional disclosure: long through December call options with $3.00 strike price