American Rare Earths & Materials, Corp. (OTC:AREM
, AREM message board
) secured another 15% up for the share price during Wednesday's trading session, but the fading volume raises a red flag.
Stock liquidity is getting worse as day traders are taking profits and new players are not pouring in as fast. The end of the day trading presented a spike in the number of shares traded, but the price didn't react, leaving little clues for tomorrow's performance.
Traders got excited about American Rare Earth seemingly out of the blue. Allegedly, the reason for the increased attention were promotions, but no hard evidence can be found on public channels.
The business of AREM is in an unfavorable situation:
- Most of its assets are intangible and the worth of the tangible ones continues to decline
- Liabilities have decrease over the recent year, but still top the tangible assets
- One year stock dilution reached 88% from September 2009 to 2010
- General and administrative expenses are eating away any profits
- Increasing losses are covered through various types of financing
The stock price currently places the market cap at $6.5 million, which is unreasonably high. Considering there were no updates to trigger the price rally, there is a very good chance that this stock will collapse in the near future.
Historically, the share price has always returned to 20 cents, and this will most likely be the case this time as well.