Sumitomo Mitsui Banking CorporationImage via Wikipedia

Our long term readers know that each trade must pass all six screens of the ZYX Change Method. This post describes the four developments that fulfilled the requirements of the trigger screen to short sell the rare earth metal stock Molycorp (MCP) on Feb 18.

‘¢ Sumitomo Corp. and Mitsui & Co. are planning a major venture to mine rare-earth deposits in Russia to compete with China. Assumption made by the bulls  that Moycorp will be the only source of rare earth metals for Sumitomo is wrong

‘¢ The World Trade Organization has ruled  China has no legal right to impose export quotas on rare earths

‘¢ According to Xinhua , the Chinese news agency, the Chinese government plans a series of steps to upgrade the rare earth metal industry. This development shows that China plans to increase capacity.

‘¢ In a secondary offering, Molycorp recently sold stock at $50. Since the secondary, the stock has struggled and never managed to go over the secondary price. Since the stock price broke the secondary price, selling by those who bought in the secondary has been an overhang.

Absent any new material information, we will short in increments of 5% of the full position size on all up spikes at the point of exhaustion in the up momentum.

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