Updated Winners For 7/26

Latest Winners:

SQQQ – entry 7/7 $21.98 exit 7/12 $23.69 +7.3%

C Aug 11 $38 c – entry 7/18 $1.16 exit 7/21 $2.28 +49%

EUO Jul 11 $17 c – entry $.25 6/30 exit 7/11 $.90 +360%

FAS – entry 7/18 $23.20 exit 7/21 $25.01 7.3%

Loser

VECO – entry 7/14 $41.31 ext 7/15 $40.93 -1%

The key to being successful is to win and lose small.

Let’s move on to two more winners in the rare earth industry:

GWMGF – Entry 6/16 $.623 – current price $1.04 +40%

I put the buy alert on GWG on 6/16 which was the day the stock bottomed. It is up nearly 50% from the lows of that day and has not yet even stopped for a breather. Congrats to GWG shareholders.

In my latest video I said that MCP could go to $75 in the next three weeks. Since then, it has broken out above the inverse head and shoulders that I talked about in the video and is now headed higher.

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Currently, I am still long TNA, MOBI, and PG. Mobi as well as many other Chinese stocks had a sharp move higher today and may be close to a breakout. Refer back to my analysis from Sunday night for a breakdown of MOBI’s chart.

PG and TNA will likely see more downside as the market pulls back off of the highs but the chart pattern in the overall market is bullish and when the debt ceiling agreement is done, there will be a pop across the board. However, I do not expect this pop to last and will look to unload my longs into the rally.

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Winners – GWG, MCP, Entry On SQQQ

Winners:
GWMGF – +23%
MCP – +20%

Loser: ZSL -4.5% exit price – $18.48.

ZSL had some solid gains Friday but the gap lower on Tuesday is what caused me to let this one go. Good portfolio management limited the downside risk on this one and silver has since surged so this turned out to be a loser, but not a detrimental loss.

On June 16th I said the bottom was put in on Great Western (GWMGF) and entered at $.623. The stock traded lower during the day making a bottom at $.574 but no new low was made after that day and the stock is now trading at $.81 for a gain of 23%. Short term downside would be the 50 MA and short term upside would be $.90.

On the same day I said that MCP was also a safe buy as long as it stayed above the $46.40 low and since then, it is up 20% though MCP was up as much as 25% a few days ago.

With the tag of the double top today, I went short the Q’s via SQQQ at $21.98. The reason why I like this short so much is because the upside is for the Q’s to fall back to 2840, (2%) (roughly 4% on SQQQ) and 2770 (4%) (roughly 8% on SQQQ), while the downside is less than 10 points. Confirmation above 2880 would be a sell but that level is only 8 points away so the downside risk is very limited.

Japan Gets Desperate, Attempts Damage Control On REM Supply Constraints

A recent discovery in the Pacific could solve the world’s REM supply problem that has been centered by the export-slashing that the Chinese have done over the last couple of years. Japanese researchers say that they have enough REM in newly found deposits in the Pacific to satisfy 1/5 of the world’s demand in just one square kilometer of the deposits.

http://in.reuters.com/article/2011/07/04/idINIndia-58061620110704

“The deposits have a heavy concentration of rare earths. Just one square kilometre (0.4 square mile) of deposits will be able to provide one-fifth of the current global annual consumption,” said Yasuhiro Kato, an associate professor of earth science at the University of Tokyo.

The discovery was made by a team led by Kato and including researchers from the Japan Agency for Marine-Earth Science and Technology.

They found the minerals in sea mud extracted from depths of 3,500 to 6,000 metres (11,500-20,000 ft) below the ocean surface at 78 locations. One-third of the sites yielded rich contents of rare earths and the metal yttrium, Kato said in a telephone interview.

The deposits are in international waters in an area stretching east and west of Hawaii, as well as east of Tahiti in French Polynesia, he said.

He estimated rare earths contained in the deposits amounted to 80 to 100 billion tonnes, compared to global reserves currently confirmed by the U.S. Geological Survey of just 110 million tonnes that have been found mainly in China, Russia and other former Soviet countries, and the United States.

Details of the discovery were published on Monday in the online version of British journal Nature Geoscience.

The level of uranium and thorium — radioactive ingredients that are usually contained in such deposits that can pose environmental hazards — was found to be one-fifth of those in deposits on land, Kato said.

“Using diluted acid, the process is fast, and within a few hours we can extract 80-90 percent of rare earths from the mud.”

See, everything is okay? Well, let’s consider the source. Japan is the country that is effected most by the tightened supply as the demand for hybrid cars and cutting edge consumer technology is becoming more and more dependent on REO’s and REM’s. Japan’s economy is dependant on being able to export these goods to other countries and the recent supply constraint has made heavy dents in their export trade. They have begun projects that involve R&D of REE deposits in countries with a high geo-political risk such as Mongolia which is a sign of how truly desperate they are.

But let’s take a look at these findings which Gareth Hatch of Technology Metals Research, LLC has already done for us.

http://www.techmetalsresearch.com/2011/07/is-someone-manipulating-the-story-about-rare-earths-under-the-pacific-ocean/

There were a number of reports over the weekend, about a group of Japanese researchers who say that they have found significant quantities of rare-earth elements (REEs) at multiple sites on the seabed of the Pacific Ocean. In a paper published in Nature Geoscience on July 3, 2011, lead author Yasushiro Kato and his colleagues shared the extensive work that was undertaken, to obtain and to analyze 2,037 samples from 78 different sites across the Pacific Ocean.

Reuters, the BBC, Nikkei and others reported that there is an estimated 100 billion tonnes of rare earths in these deposits. Which is rather interesting, because the scientists themselves made no such claim in their paper…

What they do report, are two regions of the sea bed with so-called REE-rich muds:
■one in the eastern South Pacific containing 0.1-0.22% total REEs (including 0.02-0.04% heavy REEs), in layers 10 to 40 meters thick;
■one in the central North Pacific, containing 0.04-0.1% total REEs (including 0.007-0.02% heavy REEs), in layers 30 to greater than 70 meters thick.

The authors compare these muds to the ion-absorption-type clays found in China, which are presently the world’s primary source of heavy REEs. They comment that the mud in the eastern South Pacific has heavy REE content that is “nearly twice as abundant as in the Chinese deposits“. Of course, those Chinese deposits are not sitting under “great water depths (mostly 4,000-5,000 meters)” and below the surface of the sea floor. It is because they are readily accessible and processable, that the Chinese ion-absorption deposits are exploited, despite their very low concentrations of REEs (heavy or otherwise).

Doing a couple of rough calculations, the authors estimate that a 10 meter-thick bed of mud in the eastern South Pacific, with an area of 1 square kilometer, could yield approximately 9,000 tonnes of rare earths. They also estimate that a 70 meter-thick bed of mud in the central North Pacific, with an area of 1 square kilometer, could yield approximately 25,000 tonnes of rare earths. These numbers are not too shabby (if we again forget about the 2.5-3 miles of water sat above them, and their remote location from any significant land masses). As I’ve said elsewhere, I can’t see these deposits ever being commercially exploited, but the empirical work done by the Japanese researchers which is presented in this paper, is impressive.

What the authors do NOT estimate, is a size of the total mineral resource, and wisely so. While they mention that the thick distributions of mud at numerous sites might mean that the REEs on the sea floor “could exceed the world’s current land reserves of [110 million tonnes]“, they acknowledge the considerable challenges and significant variability present on the seafloor, and thus state that “resource estimates for large regions cannot be made until more detailed data are available for areas lacking cores.”

Perhaps the lead author later just threw out a wild-ass, ridiculous guess at the size of the deposits, in response to a reporter’s question. But if he did not, and if the scientists themselves are not making the claim that there are “an estimated 100 billion tonnes of rare-earth deposits”, as reported by Reuters, Nikkei, and the BBC – just who IS making this claim? Who has inserted these comments into this story, and fed them to the mainstream media, and why might they have done that? Can we find clues in the current pricing turmoil, worries about supply from China, and the increasing politicization of the rare-earths story?

So while the “estimates” are impressive, they might not even be close to the numbers stated in the Reuters article above. Additionally most of the deposits that were discovered are in locations that are largely inaccessible, at least within the near future anyway.

Let’s go back to the original article-

The team found that sites close to Hawaii and Tahiti were especially rich in rare earths, he said.

He gave no estimate of when extraction of the materials from the seabed might start.

Really? Maybe that’s because a project that size will take a minimum of 5 years to commence, and that is assuming that the government somehow rams through all permits and provides tens of millions in grants.

Realistically, this project will not commence for another 7 years. Some rare earth skeptics have said in the past that rare earths are not all that rare, citing the vast deposits in China, Africa, and Russia. However, this argument has been defeated many times over as the physical supply has never been the issue. It is beyond well known that there are deposits rich with HREE and thorium, but the accessibility and production timelines are not satisfactory enough to commence by the time supply will really be an issue, which by some estimates will be as soon as late 2012. Two companies outside of China will be into production by early 2013, they are Molycorp (MCP) and Great Western Minerals (GWMGF).

Regarding this particular deposit in the Pacific, one person in the comments section of the Gareth Hatch response, brought up the best counter to this discovery,

“Not wanting to answer for Gareth, but take a look at Nautilus Minerals (TSX, AIM: NUS) As far as I am aware this company is the furthest along when it comes to development of deep-sea mining, and they still have a long way to go yet”.

Nautilus submitted a mining lease to the government of New Guinea in Q3 2008, and received approval for the lease just five months ago (January 17th, 2011). They are still in the process of getting the build program approved by their BOD and by conservative estimates, the project will not be producing until 30 months after approval. In other words Nautilus, which is the farthest ahead in deepwater REM mining, won’t even be into production until early 2014 assuming that their build program is approved tomorrow, when in actuality it could take months or even years for that to happen.

Additionally, I would be skeptical of any Japanese company that gains the rights to begin exploration and development of this project, or I should say I’m skeptical of any Japanese company having success at anything given their country’s stagnantly declining labor force and staggering debt to GDP which now exceeds 230%. It is also now politically unpopular for Japanese politicians to be in favor of anything nuclear, and naturally, thorium is found at REM deposits and according to the Reuters article, this deposit contains a significant amount.. Though thorium is many times safer than uranium, this fact is misunderstood by politicians and the public and as a result of Fukushima, there will be an increasing amount of pressure to further regulate nuclear power which will create regulatory hurdles that will result in massive headaches for anyone looking to produce in the sector.

Now, will there still be a knee-jerk reaction to this story? Most likely. But the important points to remember are that this deposit’s resources, while potentially impressive in nature, are not going to be online anywhere close to the time that supplies of REM’s will have dried up. The bottom line is that this story smells a lot like damage control from a cornered and desperate government that is trying to keep their heads above water.

GWMGF – Position Doubled, MCP Completes Funding For Mountain Pass

To disclose, I have doubled my position in Great Western Minerals (GWMGF). Today’s action looks like capitulation as the stock breached the March lows and the 200 MA on heavy volume even as the stock has been beaten up after months of consolidation and rising prices of rare earths. Great Western has the best heavy rare earth deposit in the sector and has recently doubled future production potential, and cut the production timeline from late 2014 to early 2013.

There really isn’t anything wrong with buying here. As I said before, they are at a six month low and in that time company fundamentals have dramatically improved and the rare earth market has heated up even further. I entered at $.623 and am in still in the money due to my previous entry points. It’s possible that it rallies to $.74 and the 20 MA within the next week or two.

The selloff came after the news that there wasn’t a significant find at Douglas River. This piece of news is literally meaningless as their primary valuation comes from Steenkampskraal which alone is enough to have them above $3 at the very least.

http://finance.yahoo.com/news/Molycorp-Announces-Completion-bw-1843340788.html?x=0&.v=1

GREENWOOD VILLAGE, Colo.–(BUSINESS WIRE)– Molycorp, Inc. (NYSE:MCP – News), the Western hemisphere’s only producer of rare earth oxides, today announced that it has secured the final funds necessary for the capital build out of its estimated $781 million expansion and modernization project at its flagship rare earth facility at Mountain Pass, California with the completion of an offering of $230 million aggregate principal amount of 3.25% Convertible Senior Notes due 2016. Full funding of the capital plan of Project Phoenix is a major milestone in Molycorp’s overall rare earth ‘mine-to-magnets’ business plan.

In other words, the scare due to the fundraising was… greatly exaggerated. Like GWG, I don’t see anything wrong with entering MCP here with it just above support and the 200 MA. It has made two bottoming tails on the daily chart and a rally to $55 would not surprise me in the least.

Great Western Minerals Signs Agreement With Aichi Steel, Possible Breakout Ahead

Precious Metals Correction Still A Technical One

I called a bottom in Great Western Minerals (GWMGF) on the 18th and forecasted that it would immediately make a run on the resistance level of $.70. I didn’t think that it would demolish that resistance, but it did just that and today it closed up another 10% at $.83. Still stock still has a lot of catching up to do and there is still plenty of time to get in.

The lower trendline is right in line with the 20 Day MA. Any pullback should find support there moving forward. There are several overbought indicators here but the volume overwhelmingly supports the move.

Silver is still getting hammered as it lost another $.51 today on average volume. The daily chart for SLV tells me that this afternoon one traders offloaded 75K worth of shares in the ETF which caused a second wave of selling late in the day.

We have support here and the oscillators are indicating that a bounce off of the current lows is in order. I think that this may only be a short term bounce but I am convinced it will happen nonetheless. This support is not invincible and if it breaks, I don’t expect $25 to fail, if anything the bottom will be there.

Same story with gold, very oversold in the short term and we should see a bounce here.

I stand by what I said last week, $1325 is the bottom based on the long term trends that date back to the 2008 crash. If this support level fails then you could say that gold’s long term structure has changed. Unless the market is ignorant to this statistic, in which case $1260 is support and an epic buying opportunity.

The underlying issue here however is that this correction is a technical move, not a fundamental move. There are plenty of explanations – “weak hands being scared away” is something I’ve been hearing. I agree with that because when you see the mining companies get hit considerably harder than the spot prices, it shows us that speculative money is leaving the market, or in other words, those who are not committed to the long term trade. Another thing I’ve heard from the likes of Peter Schiff and Bob Chapman, is that the trend as of late has been long gold/short euro, and since the euro has gained strength, people have begun to cover short euro positions and close long gold contracts. Another explanation is simply that the market needs to take profit to realize gains. Either way, what concerns me is not the reason behind the correction, but the large amount of bullish news that has been coming out despite the slowdown in prices.

Examples include: The Chinese cutting silver exports, the amount of short covering in the COT reports, Russia claiming that they will buy 100 tonnes of gold a year, or the US mint having a nearly record setting sales month for Silver Eagle Coins.

It is my opinion that the above articles that should provide bullish momentum are currently contradicting price activity in the metals markets. I believe that this means that the more that the metals consolidate with this type of news going around, the harder and sharper the buying pressure will come back. This may go down as one of the best dips that we’ll have a chance to buy gold and silver when it’s all said and done.

EUR/USD Update, Bullish Reversal In GWMGF

Last week I provided the case from the long and short sides of the EUR/USD trade and it appears that perhaps the bullish sentiment behind the Euro that we saw last week was somewhat premature. The Euro appears to have run out of momentum for the moment as the dollar hangs on to the 79 level.

The Euro/usd index met resistance at 99.65 and managed to remain flat on the day. The index has had trouble staying above this resistance level in the past and though it was all bullish last week, the momentum in the trade looks to be waning. In addition to the failed test of resistance, today as with the last 3 days, the index has opened higher than the previous close of each previous day – also known as trading gaps. In many cases, trading gaps can lead to a topping pattern. Given the information above, it appears that a top could be exactly how this coud be lining up.

FXE closed lower than the upper, downward moving trendline despite opening higher this morning. It also tested a previous pivot point as resistance but reversed intraday to finish marginally higher. This again shows that momentum has weakened and the bullishness from last week may also have just been some institutional pumping. The 14 day Stochastic is entering a state of overbought and to have that indicator line up with failed resistance tests after 4 days of trading gaps means that it should have to regroup before making attempting another run on the highs.

Right in line with the previous charts, the dollar index closed above support after the bears made a run at breaking both flat support and the lower trendline intraday.

Bottom line in this trade is that the momentum appears to have shifted back towards the dollar for the moment, however it is still up for grabs and either side can win at this point.

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Moving on to one of my favorite REE producers, Great Western Minerals (GWMGF) had a very pleasing bullish reversal during the course of the trading day after being taken down hard for two consecutive days.

Support is at $.60 and I wouldn’t be surprised to see shorts attempt to test that level within the next day or two however I do believe that it won’t close below that or the 20 day MA. Regardless of whether or not selling pressure forces a test of the lows, I believe that the stock is done with it’s brief consolidation and will likely test $.70. Assuming nothing changes in the REE market, GWMGF can easily take out that high and continue upward.