Freeport-McMoRan Inc (NYSE:FCX) stock rallied big 0n Wednesday in a broader risk-on day for materials and mining stocks. Miners and other gold stocks have had a better feel for the past few weeks, providing better underlying technical support.
Just in time for earnings season!
In recent days, Freeport-McMoRan has seen some mixed calls from the analyst community. Specifically, Citigroup upgraded FCX stock to a “buy” with a price target of $23. At the same time, Bank of America downgraded Freeport-McMoRan from “neutral” to “underperform” and lowered the price target from $22.50 to $19. (Note: Both of these calls have time frames of six to 12 months.)
We’ll dig into the charts of Freeport McMoRan in a second, but first, let’s compare the movement of the FCX stock price to that of the rising U.S. dollar.
The correlation between FCX (red line) and that of the U.S. dollar (blue line) has been notably inverse, particularly since the dollar began to rally significantly last summer. As such, the slowdown in the dollar in recent weeks has also allowed stocks like FCX to begin a better bounce attempt.
Through at least a multiweek (and possibly a multimonth) lens, I expect this inverse relationship to continue, which is to say that a consolidation phase (sideways to lower) in the dollar should benefit mining and materials companies like Freeport-McMoRan.
FCX Stock Charts
Moving over to the longer-term weekly chart of FCX stock, we see that it broke below a crucial multiyear horizontal line of support (black) last December. However, shares began to stabilize one month later by late January, when Freeport reached oversold readings according to the Relative Strength Index (RSI) at the bottom of the chart last seen during the financial crisis in late 2008.
With such deep oversold levels on the weekly chart and amid a consolidating dollar, FCX stock could stage a rally back toward the previous support area at the black horizontal line.
On the daily chart, we see that Wednesday’s 9%-plus rally also came on a meaningful bump in volume, which is supportive of higher prices. Zooming in closer, we also see that Wednesday’s move resulted in a break back above the 50-day simple moving average (yellow line), as well as above the black diagonal resistance line.
Freeport-McMoRan is scheduled to report earning next week on April 23, which could cause some near-term volatility in the stock. However, looking forward through the next few weeks (and even months), FCX shares have a lot of support and appear to be positioned to continue an upward trajectory.
Active investors and traders should look to buy FCX stock on a push above $21.10 for a move into $24 as a next upside target.
Any major bearish reversal of Wednesday’s rally should be respected and would call off the trade setup until prices can stabilize.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
