Chart Review: Molycorp On Edge of Another Big (Downward?) Move

Rare earth producer Molycorp (MCP) appears to be on the edge of another big move. A Bollinger Band squeeze is again forming around the stock. A squeeze occurs as volatility decreases, and it typically leads to a burst of higher volatility in the form of a strong move up or down.

The chart below uses arrows to point to examples of recent Bollinger Band (BB) squeezes. Note how each one preceded a significant move.


Recently, Molycorp's stock has experienced a series of Bollinger Band squeezes...all preceding substantial downside
Recently, Molycorp's stock has experienced a series of Bollinger Band squeezes...all preceding substantial downside

Source: FreeStockCharts.com

Unfortunately, each BB squeeze has preceded substantial downside in MCP. The last one was particularly virulent, preceding a 38% loss before the stock’s losses finally ended. This time, overbought stochastics and a downward sloping 50-day moving average (DMA) support the case for another bout of the downward blues for MCP. Accordingly, I bought fresh puts (November expiration) to protect my holdings. I will sell the put if MCP drops significantly.

(Click here for a archive of previous articles on Molycorp).

Be careful out there!

Full disclosure: long MCP shares and puts

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