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A Perfect Contrarian Trade For Christmas

There is very little I love more than a contrarian trade with a great risk/reward ratio. There is something satisfying about opposing conventional wisdom and being right, and when you can do so while risking minimal losses, it always grabs my attention. That is why I am looking at a trade in the ever so unpopular, beaten-down lithium industry.

The long-term case for lithium stocks is obvious and hard to refute. Lithium-ion batteries have emerged as the clear winners in the battle to power EVs and, with that market set to explode before too long, demand for lithium will explode with it. The problem in the second half of this year, however, has been that, as usually happens when a trade is obvious and well-publicized, any value in lithium stocks disappeared as the hype mounted. Once they started to soar, it wasn’t long before momentum pushed them to the point where a correction was inevitable. That correction duly came last month, but now it is starting to look as if that correction itself is overdone. One lithium stock, in particular, looks worth nibbling at as it approaches an important support level.

Livent Corporation (LTHM) is a pure-play, American lithium company that was spun off from a general mining company in 2018. It crossed above the $22 level (blue line on the chart above) for the first time in August and, once it did, that became a support level that was tested multiple times before the stock really took off in October. As I said, though,…

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