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Rare Earth Stocks Look Overdone

December 30, 2010 - RELATED TICKERS: Molycorp Inc. (NYSE: MCP), Rare Element Resources Ltd. (NYSE: REE) and Market Vectors Rare Earth Strategic Metals ETF (NYSE: REMX).

Rare earths stocks are all the rage right now. Every trader, investor, and financial media figure cannot stop talking about this industry group. Where were the rare earth stocks a year ago? Every since China mentioned that they would limit the export amount of their rare earth metals over the weekend these stocks have soared higher and caught a ton of media attention.

Molycorp Inc. (NYSE: MCP) is the leading stock and most talked about name in the industry group. This stock began trading on the New York Stock Exchange in July 29th, 2010. At that time the stock was trading around $13.00 a share and most traders did not know what a rare earth stock was. Yesterday Molycorp traded as high as $55.00 a share.

The stock also staged a high volume reversal day by trading over 16 million shares closing sharply lower from the gap higher open. That was the heaviest volume the stock has ever traded. This is a sure sign of institutional profit taking. Traders should now wait for a good chart pattern setup before looking to buy this stock now.

Rare Element Resources Ltd. (NYSE: REE) is also another rare earth stock that is now looking extended at this time. REE is trading higher today by $1.48 to $14.48. The stock still remains strong on the chart, however, when stocks become this extended it is prudent to wait for a pullback before entering.

The Market Vectors Rare Earth Strategic Metals ETF (NYSE: REMX) is an ETF that is now becoming very popular. REMX is trading higher by $1.18 to $23.45. This ETF is looking a little extended and due for a pullback at anytime now.

It is always important to watch for stocks that become very extended in just a few trading days. This is usually caused by news and often an overreaction. This does not mean that these stocks are short trades just yet. It just means that if traders are looking to buy these names it would be prudent to wait for a pullback first.

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