Rare-Earth Stocks Keep Falling. 2 Levels to Watch for MP Stock.

(Michael Tessler/MP Materials)

Key Points

• MP Materials stock fell 3.1% to $55.86, continuing a trend of declines in rare-earth stocks.
• The stock’s recent drop follows a 21% jump on October 13, which was linked to Chinese export restriction threats.
• China controls an estimated 85% of global rare-earth processing capacity, creating U.S. supply chain concerns.

Sometimes the market can be brutal.

A few months ago, MP Materials , the largest rare-earth miner in the Western hemisphere, and other aspiring rare-earth players were riding high with the U.S. government looking to eliminate the Chinese rare-earth threat.

Now, after those big moves, rare-earth stocks won’t stop falling because the rhetoric around U.S.-China trade has calmed down.

Now, investors need to get a sense of when the selling could stop.

MP stock fell 4.8% to $54.90 on Tuesday, while the S&P 500 and Dow Jones Industrial Average dropped 1.2% and 0.5%, respectively. Shares of USA Rare Earth and Ramaco Resources lost 3.3% and 4.6%.

It was the twelfth drop in the past 16 trading sessions for MP, a slide that f0llowed a 21% surge in the stock on Oct. 13. That gain left the shares at more than $95 apiece.

“With the stock rolling over sharply over the last few weeks, there haven’t been many points where buyers have shown interest yet,” says CappThesis founder Frank Cappelleri. There are two key levels to focus on with MP stock: $50 and $39. The $50 level represents a 62% retracement from the May-to-October rally. The $39 level represents the June high, another level that could be support for shares on the way down.

Cappelleri isn’t making a fundamental call on MP stock. He’s looking at stock charts and market history to understand the behavior of investors and traders.

MP’s 21% jump was tied up in threats from the Chinese to restrict exports of rare earth materials. China dominates the industry with an estimated 85% of global processing capacity. It has become an uncomfortable situation for U.S. manufacturers that need components, including some rare-earth materials, to make everything from iPhones to fighter jets.

Breaking China’s dominance in rare earths has been a priority for the Trump administration, which has orchestrated deals with MP, Japan, and Australia to ensure the U.S. becomes independent.

The long-term outlook for MP and the domestic rare-earth industry is fine. It’s the trading volatility that is hurting investors right now.

Write to Al Root at allen.root@dowjones.com