Freeport-McMoRan Inc: FCX Stock Could Drop 20%

Advertisement

After a 200% rally (you read that right) off its January lows, Freeport-McMoRan Inc (NYSE:FCX) stock may now finally have slipped into a better consolidation (lower) mode. With Wednesday’s selling pressure in the mining stocks, FCX stock finally saw some selling pressure that suggests a better consolidation phase may now be underway.

Beat the BellTraders should look to pounce on this opportunity, because there’s a lot of short side to work with.

Bear markets see some of the sharpest rallies, and this latest bounce off the January/February lows in stocks was no exception. Some of the most severely oversold areas of the stock market — such as basic materials mining stocks — saw the sharpest moves higher.

While I don’t doubt that ultimately one day we will see a reflation in the commodities space again, in the near- to medium-term, the combination of a still-oversold U.S. dollar and very overbought mining stocks says that the path of least resistance for the basic materials sector is to the downside.

FCX Stock Charts

For some perspective, let’s start today’s analysis with a long-term weekly look at shares of Freeport-McMoRan. This chart stretches all the way back to the 1990s, and without too much creativity, we can draw a horizontal band of support and resistance (blue box).

After an exhaustive drop from its 2010 highs, FCX last November finally broke below this area of support. As a result of the sharp reflex rally of recent weeks, Freeport is now right back up at this area, which may now offer some resistance for the time being.

FCX stock chart weekly
Click to Enlarge

Zooming in on the daily chart, note that the 200% lift-off in FCX stock pushed it marginally back above its red and downward-sloping 200 day moving average last week for the first time since 2014. While the financial media painted this “breakthrough” as positive, a little perspective from multiple time frames would have quickly raised some warning flags.

Besides the fact that FCX stock bumped right back into its long-term support and resistance zone last week, the stock on the daily chart also flashed overbought readings as per the MACD oscillator at levels last seen in May 2015, when the stock completed a major lower high.

FCX daily stock chart
Click to Enlarge

Indeed, it looks like Freeport’s marginal break above its red 200-day MA last week was the psychological trap that the bulls needed to fall into for a better mean-reversion phase to the downside to get started. With Wednesday’s 11.3% drop, FCX stock closed decisively below its blue 8-day moving average for the first time since January in what looks to have been a good bearish reversal.

Active investors and traders looking to play a corrective phase in FCX could eye the $7.50-$8 area as a better support area, which coincides with about a 50% retracement of the entire January to March rally as well as some horizontal support.

Like what you see? Sign up for our daily Beat the Bell e-letter and get Serge’s investment advice delivered to your inbox every morning! Download Serge’s Free Special Report: 6 Keys for Successful Trading and Investing.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/freeport-mcmoran-inc-fcx-stock-could-drop-20-percent/.

©2024 InvestorPlace Media, LLC