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Once Left for Dead, Rare Earth Stocks Now Poised to Bust Out

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Traders have taken their eyes off rare earth stocks since they became unfavorable in late 2011. But after a long season in hibernation, they may be set to go on a bull run.

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The Dow started a consolidation phase yesterday which looks healthy on the technical landscape. The levels that would raise an eyebrow for a more serious sell-off would be 13055 and 12953. Should the Dow lose those two levels, I'd begin taking a more cautious stance in the short term. Until then, the bulls are firmly in control.

My chart work this morning produced an interesting batch of setups within a theme I haven't even thought of for quite some time. Rare earth stocks, which were once left for dead, seem to be percolating of late and look poised to break from recent consolidation and bottoming patterns. The most notable is Molycorp (MCP) which would interest me over $30.60 and Rare Earth Elements (REE) which is trying to break above $6.50 and would have me looking long. My favorite, however, is Avalon Rare Metals (AVL) which has been working on drying up supply in the $3.00 range for the last several sessions. Yesterday it attempted to take this level out nearing the close and looks poised to do so this morning. Any meaningful move above $3.00 would spark me to buy the stock with a stop at $2.75.

See the video below for a more in-depth look at these technical patterns.

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No positions in stocks mentioned.

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