China Shen Zhou Mining & Resources Inc (AMEX: SHZ) – Shen Zhou has been rolling down the hill, but will it completely fall off the cliff? Georgia Congressman Hank Johnson’s call to end the Chinese rare earth monopoly in mid-April prompted the Chinese government to reduce 2011 fluorite ore production – in response, Shen Zhou’s stock price has been consistently bleeding out from $6.62 to Friday’s close at $2.39, which accounts for an estimated 64% loss in value.

Shen Zhou has had remarkable multi-dollar swings affording numerous opportunities to profit greatly. As of June 19, the amount of shares short is a staggering 2,685,600 shares that approximates more than 30% of the Shen Zhou’s float.

Shen Zhou could continue to dissolve into utter oblivion or have one of the biggest short squeezes this year will witness; only time will tell.

The chart shows:

• A sharp decline in share price over the entire month of June, closing just above a key support level at $2.35.
• The RSI is drastically oversold at approximately 16, will be watching for a turning point in stock strength.
• The MACD shows that a golden cross is easily plausible if only the positive line tips up in the tiniest fashion.
• There needs to be a reversal on both the negative and the positive ADX lines.

The Bottom Line

SHZ on the one hand looks as if a brick wall would merely be a nuisance to this plummeting stock as it would continue to fall. On the other hand, the indicators as weak as they currently are could easily turn and show a very profitable reversal trend. There is no question, with all those shares short bound to cover at some point in the near future and the drastically reduced price of a well watched stock; Shen Zhou has the potential for a huge bottom reversal trend.

Good Luck,

Ian Decker

Disclosure: No Positions

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