(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
First, Molycorp (MCP) looked poised for a rally.
Soon after that, the technicals turned, indicating pressure was building for a big move. I hedged, but I remained bullish.
Last night, MCP made two financial announcements that promise to place a more sustained overhang on the stock. Certain selling shareholders may sell up to 10M shares in a public offering. In addition, the company is selling $200 million principal amount of its Convertible Senior Notes due 2016 to qualified institutional investors. The key conditional on each announcement is the boilerplate “subject to market conditions” which means the transactions will only execute at the “right price.” In the meantime, while the market is left guessing how low that selling price can go, selling pressure will undoubtedly build and suppress the stock price as that limit gets tested…absent some new positive catalysts. Also note that institutional investors will sometimes hedge purchases of convertibles by shorting common stock.
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*Chart created using TeleChart
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Full disclosure: long MCP shares and puts