The recent trading action in Molycorp (MCP) has deeply disappointed MCP bulls. The stock has gone from a bullish technical setup to today’s oversold conditions in the space of two weeks. Inserted into this sell-off was MCP’s move to get a stock offering and convertible deal done. The announcement created a tremendous overhang on the stock that continues to weigh heavily. It will be interesting to see whether the deals will proceed as planned (execution on June 15th) with the stock now trading below the stock offering price of $51.
The chart below shows that today MCP experienced a near picture-perfect bounce off its 200-day moving average (DMA) on high volume. The stochastics are now in an oversold position as well.
Early in the day, MCP’s plunge triggered an automatic purchase of a protective put. I sold the last of my puts on Friday in the hopes that $51 would actually hold. Despite the extremely attractive price level of the stock, I am holding onto this put for a while. I may also make sure to keep protection close at hand until MCP’s positive catalysts start resurfacing. Commodities continue to suffer mightily in the current market correction, and it seems MCP is caught right in the thick of the downward bias.
Be careful out there!
Full disclosure: net long MCP