Trading Freeport McMoRan (NYSE:FCX) stock is difficult. It being a mining company makes it heavily influenced by the price of commodities. Chief of those is oil and it is heavily manipulated. OPEC can move prices with mere words. Add to it that non-OPEC members, including the U.S. production capacity, is now also a big factor. Gold is also finally making a recovery this year.
But these are mere symptoms. The real problem for commodities and FCX stock is the U.S. dollar. The greenback has been on a tear for months. This is the byproduct of the Federal Reserve policies. What the Federal Reserve decides to do with rates moves the USD. While the U.S. is raising rates, most of the rest of the world is still in QE mode. So that keeps the U.S. dollar bid strong, and therein lies the problem for FCX.
Finally, recently we saw the Fed capitulate and now they are in line with investors’ hopes. After months of pressure from President Trump and Wall Street, Federal Reserve Chairman finally admitted that he is data-dependent. This is code that he now has the same stance as his predecessor Yellen had which is a dovish stance. This weakens the Dollar a bit.
Fundamentally, FCX is cheap from a price-to-earnings perspective but since this is a stock that has a lot of outside influencers, it is best traded with more technical analysis than fundamentals. Often enough, the price of the stock has little to do with its short-term price action. Just consider what happened to Apple (NASDAQ:AAPL) when it fell from grace last year.
While Freeport-McMoRan stock is far from its 2010 highs, it’s starting 2019 strong. Year-to-date, it’s up 13%, which is better than the S&P 500 so the move is legitimate. These are momentum stocks, so when they move, they tend to do it fast and overshoot. Just since last October, FCX stock has had half a dozen moves larger than 15%.
Trading such momentum stocks poses a problem for fundamental investors, so I rely on levels.
How to Trade FCX Stock
Mid-January, FCX rallied into $12.70 and failed in a big way. But this was almost destined to be the outcome since this is a major pivot. In the middle of October, the stock fell apart from exactly that level. Then it failed twice and ruined two massive rallies.
So is it doomed to always fail there? No. This is how breakouts happen. The bulls usually need more than one try to break through resistance. Once a stock loses a ledge, that level becomes forward resistance until the bulls muster up enough energy to retake it. Needing several attempts is normal.
The good news is that once they do, they overshoot higher. In this case, if FCX bulls can push the stock past it, they can target $13.30 or higher. The pattern would then resemble a bullish inverse head-and-shoulders.
There are several lower time-frame levels to consider between the current price and the breakout line; $12.14 is a mini-breakout level to watch. It could bring in a measured move to the $12.60 battle zone.
Conversely, losing $11.42 could cause another 40 cent dip. There, the bears will have the opportunity to push it even further to $10.50. Although this is not a forecast, it is a scenario that is in play just like the upside breakout. That is why I don’t want to anticipate the moves so I wait for the price to cross my lines before chasing it.
Rallies in FCX stock will probably need the general market’s help. So anyone trading the breakout potential must do so diligently with tight stops. I don’t want to turn a trade into an investment. This stock moves fast and I could find myself buried in red for a while.
Click here for a bonus video that I recently shared discussing FireEye (NASDAQ:FEYE) that could help with the concepts discussed here.. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
