Energy and materials stocks rose sharply Monday, among them Freeport-McMoRan Inc (NYSE:FCX), which had seen a sharp decline since early May.
Of course, after the broader bounce in commodities and energy stocks on Monday, the odds favor at least some continuation of what might just be a good oversold bounce — but something that active investors and traders can take advantage of anyway.
2015 has been a painful year for investors in energy- and commodity-related stocks. The deflationary spiral we are seeing in various areas of the global economy has been particularly unkind in this space. Bear markets, however, also see the sharpest of rallies — we only have to look at the price charts of FCX stock to recognize this fact.
On July 23, Freeport-McMoRan reported earnings that failed to impress investors, who already had low expectations. FCX stock proceeded to drop about 25% in the ensuing three trading sessions as investors were concerned about the dropping price of oil and how that relates to the average $72 per barrel that Freeport carries on its books.
FCX Stock Charts
Looking at FCX stock through a multiyear weekly lens, we see that the stock hasn’t just been under pressure since the summer of 2014 when the oil price began to drop — it has been in a downtrend since early 2011. The year-to-date drop finally brought the stock to its knees and to levels last seen at the depths of the financial crisis in late 2008 and early 2009.
From a momentum perspective, we see that Freeport shares exhausted themselves in early 2015, and the drop ever since has come on less velocity, thus flashing about a seven-month positive divergence between price and momentum. This alone is no reason to blindly buy any asset, but it does get my attention for further inspection.
On the daily chart, we see that Monday’s sharp 10%-plus rally came on above-average volume and took place just as the MACD oscillator was once again in deeply oversold readings. Most importantly however, the price action was such that after a brief push below Friday’s lows at the open, the stock reversed sharply higher and left behind on the daily chart an impressive bullish engulfing candle that fully engulfed the previous five days’ trading sessions.
While FCX stock is still not out of the woods, Monday’s price action, coupled with the aforementioned backdrop, should allow active investors and traders to dip a toe in and try Freeport on the long side for a move back toward the $12.50 area.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
