Thursday, March 19, 2015

Elliott Wave longshot of the day [MCP]

Commodity prices have been circling the toilet for so long now that small players (and even some larger ones) are in serious trouble.   So when a company like MolyCorp is forced to issue a going concern notice, the gamblers all rush for the exits and rightfully so.  I mean, what can be more "fundamental" than the company management warning investors that it might not be able to make scheduled debt payments?  When does that ever end well?  In any kind of default the common shareholders will get wiped out.

But hey, I thought fundamentals didn't matter?  I mean, the real fundamentals are unknown and unknowable, right?  Well, here's a chance to test that theory based on the wave count that I perceive to be in play.  I will say, I could scarcely find a more uninviting company to do this test on than one which has issued the going concern notice.

Before I begin, I'm looking at this as if it were an options play.  Options expire!  And if nothing changes, MCP common stock will expire in June of 2016.  Now folks, that is 2016, not 2015!  The MCP share price reflects time value of more than a year!  A lot can happen during that time. 

MCP's real issue is that they leveraged up at the wrong time to buy a Canadian materials processor.  Instead of doing the conservative thing and only making acquisitions from cash, they sought to multiply their profits by borrowing the new capacity.  They got caught up in their own success.  So when commodities went down, MCP took it coming and going (in both the mining and the processing businesses).  A share price of 36 cents, the threat of de-listing and a going concern notice is the reward that they got for their liberal behavior.

Of course, the real issue is that commodity prices have collapsed.  The article says, "Molycorp has been hit by a weakened market for its rare earths, which are used in everything from electronics to bombs. The company's net revenue fell 14 percent in 2014, to $475.6 million, as the average selling price dropped to $27.42 a kilogram from $34.49 in 2013. The company's operating loss climbed to $450.8 million from $356.7 million in 2013."

Stupid liberal debt based consumption behavior aside, the wave count appears to be giving MCP the benefit of the doubt here SO FAR and I think this is supported by a broad based bottoming of commodity based wave counts.  As the commodity prices increase with the weakening of the dollar (which I count as having peaked), MCP will get better than expected prices for its valuable rare Earth commodity products.

In any case, back in January it was trading for 27 cents before the shares caught a bid back up to $1.17.   That was a quick triple for traders. Interestingly (at least to me), black 5 appears to have followed a w3.  That gives me a level of confidence that it was in fact a significant bottom.

Then the shares saw a rapid wave up which looks like it could likely be motive and which went up past the level of the prior 4th so I count it as blue 1 (or A). 

Now the recent sell off, at least so far, counts as a-b-c which, if it holds, would create an inclining double bottom.  So I think MCP is very near another big bounce that is either wave C or wave 3 with initial price target in the $1.40 range.

Zooming way in, here is my count of the pullback.  So I would expect a small move up into green 4 and then a final sell off to the 30 cent level.  But it could also have bottomed already and we will know this is the case if the shares move up very much past 39 cents.

Folks, I am not advising anyone to buy this.  I don't give free gambling advice, ever, regardless of the wording might choose to use on my blog.  If this goes BK, and it might, that is the problem of whoever laid a bet on it.  The whole stock market is nothing more than gambling and this is admittedly a wild long shot, like playing craps.  So this post, like all my posts, is for financial entertainment only.

Don't bet more than you can afford to lose.

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