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Molycorp: 9 Things the Stock's Chart Is Showing


Molycorp stock has the potential for big volatility; consider a straddle/strangle.

Today's chart is of Molycorp, Inc. (NYSE:MCP), a development stage company, which engages in the production and sale of rare earth oxides in the western hemisphere. Its rare earth products include oxides, metals, alloys, and magnets for various inputs in existing and emerging applications comprising clean energy technologies, multiple high-tech uses, defense applications, and water treatment technology.

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Strategy: Stock has the potential for big volatility, consider a straddle/strangle.

What I Am Looking At:
  • Rare Earth Metals ETF (REMX) underperforming, down more than 16% year-to-date.
  • MCP greatly underperforming, down more than 63% year-to-date.
  • Up against numerous points of resistance, namely the August low, the downtrend line from April peak, and the declining 40-day moving average = possible major inflection point.
  • The last two weeks are in a tight contraction mode, expecting an expansion move shortly.
  • Peak call open interest for December series resides at the 10-strike, majority sold-to-open, could be a major headwind for shares.
  • Short interest at all-time highs, represents nearly 37% of the float.
  • Ten-day buy-to-open call/put ratio stands at 3.33, meaning 333 calls purchased for every 100 puts, possible hedging action from short sellers.
  • Three out of five analysts who cover MCP maintain "hold" ratings, average target price = $11.36.
  • Quarterly revenue growth (yoy) – 49%.

This article by Tony Venosa, CMT, was originally published on Schaeffer's Investment Research.

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Twitter: @schaeffers
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