Market Overview

Market Astrology: The Risk Trade In Rare Earth

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The rare earth companies Molycorp (NYSE: MCP), Avalon Rare Metals (NYSE: AVL), and Rare Element Resources (NYSE: REE) have all sold off heavily in light of the continued export restrictions from China.

In December 2011 China cracked down on illegal mining and illegal exports of both the light and heavy rare earth elements. Of the 80 applications for rare earth production and operating license in China, the government only selected 15 that conform to the new environmental standards.

China put an additional clamp on the industry by checking all domestic sales and exports and matching those sales with licensed output. There is a distinction between the light rare earth ("LREE") and the heavy rare earth ("HREE") that have military and advanced aerospace technology applications, and that China is currently the sole producer of.

REE and AVL can both produce HREE's and will most likely see increases in the future as those mines meet production targets.

There is another dynamic to the rare earth story, and that is the political squaring off between the United States and China. I wrote an article on Zentrader September 20, 2011 detailing the astrology transits in China's chart and the U.S. chart that showed the potential for a legal challenge to China's export restrictions.

I advised to watch for a reaction in the sector and a potential legal challenge February 24th-25th. We did in fact see a big price drop in rare earth stocks beginning February 24th and a public statement by the President on March 13th from the White House, criticizing China for their continued trade restrictions.

Here is an excerpt from my article:

"This is a continuation from the July efforts of the WTO lawsuit claiming China broke international law when it curbed its rare earth exports. I wrote about the outcome for those events (read article here) that China would not relent in a move that would lead to further price increases. Jupiter is moving retrograde to the same point October 6th as it was in July, where the WTO filed the lawsuit, and inconjunct China's Sun. The transit suggests an obligation and a shift of plans on China's part and they will most likely make some adjustments that are beneficial to the U.S.

However Mars will conjoin China's Mars/Pluto beginning October 12th which will most likely be an aggressive move to force China to change their policies. October 1st – 4th and again October 10th watch for potential increases in rare earth stocks but a word of caution, there is a lot of stress on this sector.

The conflict with China continues into February 2012 where there could be another lawsuit. Watch for the dates February 24-25 for news regarding an international move against China's rare earth export restrictions."

Going forward we could see continued pressure on this sector, and a growing conflict with China.

mcp.pngChart courtesy of Zentrader

We could see another big setback for MCP May 7th and potentially very harsh on May 25th. Molycorp could potentially retest the lows from December 2011.

Editor's note: This article was contributed by Karen Starich, Astrology Traders

Posted-In: market astrology molycorpLong Ideas Short Ideas Markets Trading Ideas Best of Benzinga

 

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