A CLASSIC “STOCK MANIA” PLAYS OUT AS WE EXPECTED
Today’s chart provides a critical lesson for speculators.
As longtime DailyWealth readers know, “rare earth elements” is the name of a little-known group of metals that are used in everything from electric car batteries and wind turbines, to advanced electronics (the kind in your iPod or cell phone).
Two years ago, China reduced exports of rare earth metals in order to conserve its supply and squeeze other countries.
Those actions sparked a global scramble to build non-China reserves… and a “mania” in a small group of mining stocks.
Molycorp (MCP), owner of the largest developed rare earth deposit in North America, led the charge.
Shares skyrocketed 500% in the nine months after the company’s July 2010 IPO.
In late 2010, we warned readers that the “rare earth” mania (like all manias before it) would end badly.
As you can see, Molycorp’s boom has turned into a bust. After falling 85% from its 2010 highs, the stock is right back where it started.
Speculators who didn’t follow a stop-loss strategy gave up any gains they made riding the boom.
Anyone who tried to “catch a falling knife” on the way down fared much worse.
– Larsen Kusick
Source: Market Notes