One simply needs to look at the float and the volume traded today to understand that the move up in $MCP and $REE is massive short squeeze. The trigger for today’s move up is the report that China may ban export of rare earth elements to Europe and US.
There are several misconceptions in the market. First, for the most part the name rare earth elements is a misnomer. Most of these elements exist in abundance.
Second, there is a misconception that these elements are available only in China. Nothing could be farther from the truth. Due to cheap labor in China, western world mines simply could not compete on cost and went out of business.
In our opinion, China’s apparent ban on rare earth elements is simple posturing. China knows that its leverage is only short lived as it will not be long before the western world again starts producing rare earth elements. Valuations of $REE and $MCP have lost all connections with their fundamental reality.
We do want to caution our readers that considering the small float of $REE and $MCP, there is a potential for further squeeze. Therefore , it is important to trade around a small core position like we have been doing i.e., take profits on dips and short on rips while slowly improving the average price of the core position. We also caution against taking large positions. The focus should be on building the core position slowly over a wide price range in small increments.