Thursday, September 30, 2010

Accumulation on Rare Earth Elements (REE) - Quick Update

I have noticed a familiar trading pattern in leading high beta (volatile) stocks. In particular, a recent favorite REE has  been having pullbacks as much as 8 to 10% intraday, only to bounce back to positive territory by the end of the day. I have noticed this in the last several trading sessions. The volume patterns are similar to that of HFT (High Frequency Trading) algorithims. The pullbacks are designed to drop the bid on the stock price so that whomever is accumulating the stock is able to buy and add to their position at cheaper prices. The strength of the bounce-backs watching the intraday candles is a clear sign of this. This is an accumulation pattern, and someone is adding big time. Notice in the chart below ever since the breakout from the consolidation (gray rectangle area) to new highs volume has doubled or tripled the average daily volume from previous trading sessions. Notice also the volatility and how big the price movements from the daily low to hi in percentage terms. This chart is on a 4hourly candle timeframe since there is limited history on REE.

Notably, I discovered REE has regained a longer term trendline (gray line) and is sitting right on it. This chart I drew yesterday, and today it managed to bounce off the bullish trendline once again.

I drew in fibonacci retracement levels for possible pullback points, but the momentum favors the bulls at this point. The two channels seem similar and REE could possibly fall into another consolidation pattern before running higher again as it has fallen out of the newer rising channel. The difference now is that the stock has much more attention (volume) and I firmly believe it is under accumulation. I see similar patterns in Molycorp (MCP) which has more than doubled in recent weeks as well.

Pay attention to the SP500 Index, it touched above 1150 today but has failed to close the poke above didn't fuel a break to new highs towards 1200. The overall market has yet to prove itself to the bullish/new highs side - but the Rare Earths sector seems unstoppable even on down market days.

Next update will be this weekend, stay tuned and happy Thursday! :)

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