China currently produces about 97% of rare earth elements, used worldwide mainly in new technology and clean energy systems. Earlier this year China began intimating that they would look to slash quotas for their rare earth exports, which would have a tremendous on the sector by limiting supply. Every time China has threatened to slash their exports the rare earth stocks have been a trader’s dream. Yesterday China announced definitively they would be cutting rare earth quotas by just over 10%.
In early October Molycorp, Inc. (NYSE:MCP) started to act very well and came onto traders’ radars. The first real breakout happened above $30 and that’s when prudent traders got familiar and started to look to see if there were any other stocks in the group that could come into play. As MCP started breaking higher, others did pop up.
Rare Earth Resources, Limited (AMEX:REE) was the next to emerge. This stock started getting very active when it broke above a nice pennant around $8 and become a great technical stock with additional set ups as the group stayed in play.
Today, China Shen Zhou Mining & Resources Inc. (AMEX:SHZ) is playing catch up after Avalon Rare Earth Metals Inc. (AMEX:AVL) made its move earlier in the week. The media is now all over this sector and contributing to the excitement, and I am short some SHZ after what felt like an over exuberant extension today.
The key to trading these stocks is watching volume and new highs. If you are a short term trader, these are stocks that you can likely trade with sucess after spending time to get acclimated, learning the speed and way they trade. When these fast movers become extended, they also can provide short term opportunities on the short side. Always be on the lookout for the next innovative group and then you will catch big winners and smooth movers.
*DISCLOSURE: Short SHZ
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