High debt continued to plague Freeport-McMoRan Inc. (FCX) in 2018, dropping the commodity giant to a two-year low. The stock has never recovered from the 2013 debt-financed acquisition of Plains Exploration and Production, right at the cusp of the worst energy sector decline in several decades. At the same time, secondary offerings used to pay down the debt have diluted shares badly, with a massive 1.39 billion float decimating long-term value.
Technical readings have dropped into deeply oversold levels, raising the odds for a sturdy first quarter bounce, but long-suffering shareholders should curb their enthusiasm because the long-term chart predicts that the decline will eventually reach the 2016 low at $3.53. However, that nightmare scenario should be off the table, while a bounce offers a perfect opportunity to reduce or eliminate exposure taken at much higher levels.
FCX Long-Term Chart (2000 – 2018)
A five-year downtrend ended at the start of 2001, lifting the stock off a deep base near $4.50. It completed a multi-year inverse head and shoulders breakout in 2003, entering a powerful trend advance that paused in 2005 and 2006. Healthy buying pressure resumed in 2007, generating a final rally thrust that stalled just above $60, while a breakout attempt six months later triggered a major reversal.
Bearish action completed a double top in September 2008, yielding an immediate breakdown at the same time that broad benchmarks suffered the worst losses of the economic collapse. The stock finally bottomed out at $7.86 in December and turned higher in a healthy recovery wave that stalled in the mid-$40s in 2010. It completed a round trip into the 2008 high one year later and reversed once again, denying breakout buyers.
The sideways pattern between 2009 and 2014 carved a massive head and shoulders pattern, with a neckline near $28. A November 2014 breakdown generated intense downside, dumping the stock through multiple selling waves into January 2016, when it found support a few cents above the 2000 low. The subsequent bounce recouped the last leg of the decline in a V-shaped pattern that eased into a rising channel in April, adding to gains for next 21 months.
FCX Short-Term Chart (2016 – 2018)
The stock topped out above $20 in January 2018 and turned lower, breaking the rising channel in August. Selling pressure then escalated, carving a declining channel that has controlled price action into 2019. The stock has now broken the 2017 low at $11.05 and reached the October 2016 low at the edge of single digits. Buying interest remains exceptionally weak, dropping the on-balance volume (OBV) accumulation-distribution indicator to the lowest low since December 2017.
A Fibonacci grid stretched across the two-year uptrend places the decline at the .618 retracement level, which marks a high-odds turning point, at least for an intermediate bounce. This suggests the stock will bottom out near $10 and turn higher, testing resistance at the 50-day exponential moving average (EMA), which has ended rally attempts since July 2018. That level has now aligned near the 50% retracement, while the declining 200-day EMA has dropped into the .382 retracement, predicting that a recovery wave will find it difficult to trade above $14.
It will now take a rally above the lower red channel near $16 to restore a more bullish technical outlook. Conversely, a sell-off through the .618 retracement level needs to break just one support level to reach the 2016 low at $3.52. That’s bad news for remaining shareholders if bulls fail to lift the stock in the next few weeks. Watch the .786 retracement near $7.25 if that happens because a bounce back toward $10 might offer the last chance to get out with a less painful loss.
The Bottom Line
Freeport-McMoRan stock has reached harmonic support after a miserable 2018 and could bounce in the coming weeks. Unfortunately, it will take tremendous buying power for that uptick to restore the broken uptrend.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.