If You Like Rare Element Resources as a Trade Right Now, You'll Love This Competitor (REE, AVL)

Rare Element Resources Ltd (NYSEMKT:REE) has been getting more than its fair share of attention of late.... bullish attention, to be precise. The stock's benefited from the attention too, with REE shares up 58% in the past two and a half weeks. As compelling as that move is, however, it's not the best rare earth bet at this point. If you like Rare Element Resources, you'll love Avalon Rare Metals Inc. (NYSEMKT:AVL). Unlike REE, AVL isn't already overbought. Indeed, it's just getting started.

First and foremost, it's worth noting that the undertow pushing Avalon Rare Metals and Rare Element Resources Ltd shares upward is doing the same for most rare earth metal miners. That undertow is simply a broad price improvement for rare earth elements. Since July's low, neodymium ("the biggie) prices have advanced from $75/kg to the current price of $103/kg, and are still going strong. Some observers have already suggested the proverbial bottom has been made, and their arguments actually hold up pretty well. That's why REE and AVL have been such - no pun intended - hot commodities of late... this rebound in rare element prices seems to be the real deal.

So what's wrong with Rare Element Resources Ltd that isn't wrong with Avalon Rare Metals? In simplest terms, AVL isn't overbought right now, while REE is.

With just a quick glance at the chart of Rare Element Resources Ltd we can see that shares had already been hot, gapping higher back on the 16th, yet never looking back. Now it's up huge, and on huge volume. In fact, today's big 11% pop will be the highest volume day we've seen in months.

On the surface it seems bullish, but this is one of those "too much of anything is still too much" situations. REE may be hot, but it's well overextended already, and today's extreme bullishness may be actually be a blowoff top.

AVL, on the flipside, isn't nearly as overextended right now. In fact, it appears to just be getting started. Though it too is surging on huge volume today, this is the first time we've seen any real technical progress from the stock. Make no mistake, though - this progress should be catalytic. Not only has Avalon Rare Metals Inc. just now hurdled a key horizontal line at $0.96, but it's just not toying with its 200-day moving average line; Rare Element Resources Ltd shares have already blown well past their 200-day line, and if anything that long-term indicator line is ready to reel REE back in.



The tricky part here is dealing with the reality that both stocks are still subject to any fluctuations in rare earth element prices. If they fall, so too will REE, and most likely AVL will as well. But, Avalon shouldn't fall as much since it's not as overextended, which means it's going to rekindle the uptrend much better and much stronger (and at a much higher level) than Rare Element Resources shares will.

To make matters trickier, it's possible rare element prices won't fall anytime soon, or even in the distant future.

Regardless, if you're willing to bet that rare earth element prices have already seen their worst and can only get better from here - for the long haul - then Avalon Rare Metals Inc. is a much more palatable pick than Rare Element Resources Ltd is at this point.

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