The commodity comeback hit maximum velocity Wednesday. Materials and mining stocks were bid up with abandon in an epic mutation from laggards to leaders. Freeport-McMoRan Inc (FCX) stock led the charge, rising 10% on the day on oh-my-gosh volume.
Impressively, the bullish rout arrived after the mining stock had already rallied six days straight.
All told, FCX stock is up a ridiculous 50% since pivoting higher on Sept. 28. While such a vicious move isn’t exactly uncharacteristic of stocks that have descended into the single digits, it’s still the largest pop we’ve seen from Freeport-McMoRan in many many moons.
Click to Enlarge
Perhaps the most telling development in FCX stock is the improvement in its technical structure. This week’s rally succeeded in lifting the stock back above its 20- and 50-day moving average as well as key intermediate-term resistance.
Further increasing Freeport-McMoRan’s curb appeal is the increased number of accumulation days showing up in recent weeks. These high-volume up days suggest continued interest by big buyers, which has helped to put a floor in FCX’s stock price.
The ridiculous volume spike during Wednesday’s trading session may signal the current rally has topped and a pullback — or at least a pause — is in the cards. Such a correction would set up the next buying opportunity in FCX, however, so keep it on your radar.
The FCX Trade
Not surprisingly, FCX option premiums are juiced these days. Blame it on the sharp whoops and whirls in FCX stock. To cut the cost of the trade, consider entering an option spread versus buying calls outright.
Buy the Jan $13/$16 call spread for $1 or better.
If FCX stock does see a pullback in the coming days, you should be able to snatch up the call spread for even cheaper. The max loss is limited to the initial debit paid and will be incurred if the FCX stock price sits below $13 at January expiration.
The max gain is limited to the distance between strikes minus the net debit, or $2, and will be captured if FCX can rise above $16 by expiration. By using January options, we give ourselves plenty of time for Freeport-McMoRan to climb above the higher strike.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
