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Are Molycorp, Newmont, and Other Miners Too Risky Now?

http://www.minyanville.com/businessmarkets/articles/molycorp-miners-mining-companies-gold-miners/5/17/2011/id/34599

By Raghu Gullapalli, contributing writer

 I hate telling people, “I told you so.” But when it comes to the crash in commodity prices, especially the rare earth sector, “I TOLD YOU SO!” Given the recent rumbling in commodities as a whole, this may come off as a time machine call out.  But I can honestly say I’ve been talking about this for days.   I shared my opinion with all of you on May 10th in my article “Is the Rare Earth Bubble Ready To Pop?”

This is a great lesson in risk management. Molycorp (MCP) the leader in the sector had nothing less than a stunning run over the past year, increasing more than 500%. Fueled by news from China, speculation in the industry, speculation in other metals and low margin costs. The stock just a week ago, looked like it was priming for another run, possible all the way to $100.

It’s at times like these, when the rest of the investing world gets frothy at the mouth, that the smart money starts looking for the exits. It’s a poor cliché but to paraphrase it, “the rich don’t go broke taking profits.” 

The first catalyst to kick off the rapid downtrend was the poor earnings report issued on the morning of May 11th and then the weakness of the overall sector and commodity market.

Yet if you were following SmartStops, then your first exit trigger occurred on May 11th at $62.45 which lead you to protecting your profits.  The latest and third SmartStops exit trigger in this series occurred on the 16th of May at $58.69.

SmartStops.net Risk Management

 

The stock may continue downward seeking heavy support.  Smartstops.net current short-term stop is at  $56.96 and the long-term stop is at $50.17

Molycorp’s mining peers have not fared much better. If miners truly are a leading indicator of what is to come, it may be well past time to exit any short and medium term positions in a slew of metals.

Freeport McMoRan (FCX), Newmont Mining (NEM) and Silver Wheaton (SLW) to name a prominent few are all flagged in “above normal risk” with SmartStops.  FCX has a SmartStops short-term stop at  $45.66 and the long-term stop is $44.52. NEM’s short-term stop is $50.97 and long-term stop is $49.75. SLW’s short-term stop is $31.47 and the long-term stop is $30.31

If the S&P continues yesterdays down move and breaks the 50 day moving average at 1325, the index could very well find 1300 soon after. This market is shaking out most of the speculators and will soon allow value investors who practice good risk management an opportunity to enter growth stocks at advantageous prices.

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