Shares of natural resources company Freeport-McMoRan Inc (NYSE:FCX) fell after the company reported its latest earnings on Wednesday, Jan. 25. Through a multiweek lens, however, FCX stock remains well-positioned to push higher. Better still: The stock is offering well-defined areas of support, which you can use to define your own risk.
As I discussed yesterday, materials stocks as a sector this week have been showing notable relative strength. Freeport-McMoRan also is a materials stock, so purely through sector analysis, FCX should continue to have wind at its back for the time being.
At least until a major bearish reversal rears its ugly head.
For the fourth quarter, Freeport reported net income of $292 million, or about 25 cents per share, which came in below analyst estimates. Still, FCX stock has shown great relative strength versus the broader stock market over the past 12 months.
Barring a sudden change in winds, this looks to continue.
FCX Stock Charts
To show this more visually, I created the below ratio chart where I divided FCX stock by the S&P 500 — as represented by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). Note that after years of relative weakness, FCX in early 2016 finally began to break out of this down-trending channel.
All else being equal, this change of trend looks set to continue. That is to say, FCX could see continued outperformance versus broader U.S. stocks.
On the multiyear weekly chart, we see that FCX stock — from its 2011 highs down into its early 2016 lows — lost more than 90% of its value, which is reflective of the relative weakness of the stock over this period of time.
After the stock in early 2016 marginally pierced below its lows from the year 2008, it began to rise from the ashes. Since then the stock has managed to push itself back above its 50-week (yellow) and 100-week (blue) simple moving averages. Upside momentum in this time frame, as represented by the MACD indicator at the bottom of the chart, is also curling higher.
Barring a major outside shock the stock now looks to be gravitating toward the multiyear diagonal resistance line (purple-dotted line diagonal), which currently also matches up with the 200-week (red) moving average.
On the daily chart, note that after FCX stock in early November 2016 broke above horizontal resistance around the $13.50 area, it retested this level upon a pullback in early January and promptly began to bounce.
This week, on Jan. 24 — ahead of its earnings report the next day — FCX stock gapped higher and broke past resistance and its November 2016 highs.
Active investors and traders now could try to play Freeport-McMoRan higher upon a push above $17 for a move toward $18 as a next upside target, using the $15.80 area as a stop-loss area. Traders with somewhat lengthier time frames could look to remain long the stock or leg into initial long positions for a move toward the $20 area.
Any major bearish reversal on a weekly closing basis must be respected as a potential stop-loss signal.
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