Junior Resource Rebound

Most companies in the Junior resource sector experience parabolic price movement in September and November and went on to exceed even the most optimistic analyst's short term projections. A sizable correction is a necessary, healthy and normal part of start of a re-emergent bull market. Though much of this correction is due to the overall correlation with the equity market (0.3 correlation to the NASDAQ with most major ree stocks) and commodity markets (0.4 correlation to commodity baskets).

Some insight into the fundamentals of the original jump. From 2007 some of rare earth oxides have risen by over 1000%, samarium oxide was $3.60/kg in 2007, $14.40/kg in the 2nd quarter of 2010 and $36.38/kg by Q4 of 2010.


During this time period, not only did China announce they will cut back on rare earth exports, China is projected to be an importer of rare earths by 2015. This is the product of an extremely frugal nation experiencing an average 9% growth rate over more than 20 years. Some mineralized areas may contain ore bodies at these prices, new waves of discovery are flooding the market as we try to isolate our best chances for gains.



On April 14th, 2010 the US Government Accountability Office put out a report stating it would take 7-15 years to rebuild a rare earth element supply chain. An excerpt below from the GAO's report, Rare Earth Minerals in the Defense Supply Chain.




The correction has essentially run it's course. Silver Spruce Resources has plenty of short term support at $0.14 (though we did see an intraday breach of this level on 3/10/2011) and the MACD, the Elliott Wave oscillator (and other indicators) show the stock likely being currently oversold. With just over 109,000,000 shares, fully diluted, this company is currently dirt cheap. I have charted Silver Spruce SSE.V (otc: SSEBF) from January 2010 to show the deep correction trending down to support. (available to everyone at freestockcharts.com)




Medallion Resources MDL.V (otc: MLLOF) is trading at par with the support level of the second wave up (most of the smaller cap ree companies experienced a traditional Elliott Wave, three up two down pattern) and is a great value at this price. Indicators also point to Medallion being oversold.



Another similar ticker is Pele Mountain Resources GEM.V (otc: PMNHF). Though Pele is trading at the top range of the second wave, there is pretty hard support at $0.33 and could easily reverse the trends at this point. Also Pele isn't showing itself to be as oversold based on indicators, but should rebound quite nicely from here.



Most of the micro cap ree companies are not going to dip below their "2nd wave price per share" based on the fact that the underlying commodities they represent currently justify those levels. Let us not forget many of these Canadian and Scandinavian mining and exploration activities are less active in the colder months and hence produce less news to bolster the investors bullish outlook on individual stocks. Additionally we are headed into April, the strongest month for stocks since 1959, 40 months was April up, 20 months April was down (average gain 1.4% for the S&P and 2.0% for the Dow).

So when you are checking up on your portfolio and see the ree microcaps (and even the majors REE, MCP, TASXF) down again, don't panic, buy more.

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