Perennial laggard Freeport-McMoRan Inc. (FCX) broke out above an eight-year trendline in July, potentially ending the multi-year downtrend, with buying interest driven by higher copper and gold prices. However, the uptick is now approaching the price level that ended the recovery wave into 2018 dead in its tracks. A rally above that formidable barrier is needed to end the string of lower highs in place since 2008 and confirm a new uptrend.

Key Takeaways

  • Freeport-McMoRan has been gaining ground in sympathy with higher gold and copper prices.
  • The stock mounted an eight-year trendline of lower highs in July.
  • The rally needs to trade in the low $20s to confirm a new uptrend.

As a result, shareholders may wish to take profits and head back to the sidelines because it could be months or years before the stock clears the upper teens and low-$20s, especially with the declining 200-month exponential moving average (EMA) narrowly aligned with the January 2018 high at $20.25. Even so, gold and copper continue to trade near rally highs, and speculators looking for breakouts are likely to stand firm, waiting for those commodities to hit even higher highs.

Freeport's energy sector exposure remains a noose around its neck, with the 2012 foray into that volatile sector generating high debt and big losses. But higher copper prices, driven by expectations for a strong worldwide recovery, could overcome that headwind and bust through major resistance. Unfortunately, the waiting game carries high risk because both commodities have risen to levels that have triggered past declines.

Bearish Wall Street consensus has eased in 2020, with a "Moderate Buy" rating based upon six "Buy" and five "Hold" recommendations. No analysts are recommending that shareholders sell their positions at this time. Price targets currently range from a low of $11.50 to a Street-high $23, while the stock opened Thursday's session about $1 above the median $16 target. Given this mid-range placement, the current uptick could easily stretch toward $20.

The debt ratio is a financial ratio that measures the extent of a company's leverage. The debt ratio is defined as the ratio of total debt to total assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a company's assets that are financed by debt.

Freeport-McMoRan Long-Term Chart (2008 – 2020)

Long-term chart showing the share price performance of Freeport-McMoRan Inc. (FCX)
TradingView.com

The stock posted an all-time high at $63.62 in 2008 following a multi-year uptrend, driven by China's massive infrastructure initiative. It dropped into the single digits during the economic collapse and charged higher into the new decade, topping out less than three points below the prior high in 2011. The subsequent decline found support in the upper $20s, yielding a broad descending triangle that finally broke to the downside at the end of 2014.

The selloff stretched into a 16-year low in 2016, ending within 14 cents of the all-time low posted in 2000. A steady uptick failed at 200-month EMA resistance at the start of 2018, giving way to renewed selling pressure that accelerated to a four-year low in the first quarter of 2020. The stock completed a V-shaped recovery pattern into the January 2020 high in July and kept on going, hitting a two-year high this week.

A descending triangle is a bearish chart pattern used in technical analysis that is created by drawing one trendline that connects a series of lower highs and a second horizontal trendline that connects a series of lows.

Freeport - McMoran Short-Term Outlook

The rally mounted an eight-year trendline of lower highs in July, potentially signaling an uptrend that needs to post a higher high for confirmation. Accumulation readings are supporting the advance, with the on-balance volume (OBV) accumulation-distribution indicator lifting to an all-time high. However, the stock broke 200-month EMA support at the end of 2014 and failed a breakout attempt in 2018, telling market players that this buying impulse needs to reach the lower $20s on strong volume to confirm the end of a secular downtrend.

The Bottom Line

Freeport-McMoRan stock needs to rally into the low $20s to end a string of lower highs in place since 2008.

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