Freeport-McMoRan Awakens From Its Long Slumber

Shares of copper giant Freeport-McMoRan Inc. (FCX) hit a two-year high just above $20 at the start of 2018 and turned sharply lower, descending in a straight line into year end. This horrific performance booked a negative 46% annual return, shocking long-term shareholders. Price action this year looks far more constructive, with the stock carving the last wave of an inverse head and shoulders basing pattern.

Price action on Freeport-McMoRan stock matched the copper market for years, but ill-timed energy acquisitions generated high debt levels, forcing dilutive offerings that have lowered shareholder value. As a result, the stock now underperforms copper futures by a wide margin while trading in tandem with quarterly commentary on debt management. Even so, the company has retained impressive ownership that includes Carl Icahn's current holding of 50 million shares.

FCX Long-Term Chart (1995 – 2019)

Long-term technical chart showing the performance of Freeport-McMoRan Inc. (FCX)

The company came public in August 1995 (red line) and entered a trading range with support at $11.30 and resistance at the IPO peak. It broke out at year end, entering a modest uptrend that stalled at $18.07 in May 1996, marking the highest high for seven years, ahead of a decline that posted new lows in 1997. The downtrend ended just above $3.00 in November 2000, giving way to a recovery wave that completed a round trip into the prior high in the fourth quarter of 2003.

It built a base at that level for two years and turned sharply higher in a healthy uptrend that continued into May 2008's all-time high at $63.62. Bears took firm control during the economic collapse, triggering a vertical decline that relinquished six years of healthy gains while dropping the stock back into the single digits in December 2008. It turned higher once again in 2009 and took off in a V-shaped recovery wave that stalled less than three points under the 2008 high in 2011.

A slow-motion decline accelerated in 2014, dropping through the 2009 low and into a test of the 2001 low. Committed buyers emerged just 14 cents above that level in January 2016, lifting price above broken support near $8.00 about two months later. The uptick then eased into a rising channel and held that pattern through the early 2018 high, finally breaking down in August and heading into December's two-year low.

The monthly stochastics oscillator dropped into the oversold level in November and crossed into a buy cycle in January, forecasting six to nine months of relative strength. However, resistance has now aligned between $16 and $21, predicting limited upside in coming months. For market technicians, a rally above the blue line of descending highs would ease the bearish long-term outlook, but the stock hasn't traded above the 200-month exponential moving average (EMA) in the lower $20s since 2014.

FCX Short-Term Chart (2016 – 2019)

Short-term technical chart showing the performance of Freeport-McMoRan Inc. (FCX)

Price action since October has carved an inverse head and shoulders basing pattern across the opening print of the 1996 IPO, highlighting the durability of past price levels. A breakout would generate a measured move target between $15 and $16, in line with long-term resistance. A head and shoulders breakout trade shows favorable reward-to-risk, at nearly 25%, but aggressive profit taking may be needed to avoid the next large-scale reversal.

It's astounding that the on-balance volume (OBV) accumulation-distribution indicator barely budged in 2018 despite huge downside, suggesting underlying loyalty. However, apathy sounds like a better explanation, with trapped shareholders holding their noses while waiting for the stock to wake up from the dead. Fortunately for bulls, that's finally happening, but the low-hanging fruit won't last forever, making this price structure a better bet for traders than investors.

The Bottom Line

Freeport-McMoRan stock has lifted off a two-year low and nearly completed an inverse head and shoulders pattern that favors a rally into the mid- to upper teens. 

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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