Perennial laggard Freeport-McMoRan Inc. (FCX) surged to an 11-month high this week and is now testing three-year resistance near $17. A breakout into January may signal impressive gains in the first half of 2018, opening the door to the low $20s. Even so, straight up action since the metals giant turned higher ten days ago preaches a cautious approach until short-term overbought readings work out of the system.

The stock ended a five-year downtrend at a 15-year low near $3.50 at the start of 2016 and rallied into the mid-teens in January of this year. It has been consolidating those gains through most of 2017 while keeping shareholders up at night, threatening to break support and roll over into the single digits. Bulls have now won those battles, despite mixed action in the commodity contracts driving Freeport's volatile trends. (See also: Investing in the Metals Markets.)

FCX Long-Term Chart (1996 – 2017)

 

The stock's current incarnation came to life in 1995 in the lower teens, ahead of a trend advance that topped out at $18.07 less than one year later. It turned sharply lower into the new millennium at the same time that big tech stocks were engaged in a historic bubble. Freeport's decline finally ended at $3.38 in November 2000, carving the deep low that got tested more than 15 years later.

The stock completed a five-year inverse head and shoulders pattern with resistance at $10.70 and broke out in 2003, entering an uptrend that reached the prior decade's high a few months later. The rally stalled at that level, generating nearly two years of sideways action that completed the handle of a multi-year cup and handle pattern. It finally broke out in the fourth quarter of 2005 and posted dramatic gains into 2008, topping out at $63.62 and plunging during the economic collapse.

Freeport shares bounced in the single digits in December 2008 and carved a V-shaped recovery that stalled within two points of the prior high in 2011. That marked the top, ahead of an orderly decline that escalated into a full-blown death spiral in the second half of 2014. Intense selling pressure continued through 2015, finally ending just 14 cents above the 2000 low in January 2016. Price action since that time has carved a relatively minor bounce that has not reached the .382 Fibonacci retracement of the multi-year decline near $24. (For more, see: Freeport Evacuating Indonesian Mine Worker Families After Shootings.)

FCX Short-Term Chart (2014 – 2017)

 

A Fibonacci grid across the final selling wave starting in 2014 organizes recent price action, aligning bounce resistance at the .382 retracement level. The stock pulled back from that harmonic barrier and carved a narrow consolidation that found support near $11 in the second quarter, ahead of a slow-moving recovery wave that has just reached range resistance. A breakout will favor additional upside into the .50 retracement level near $21, which has aligned with the 200-week exponential moving average (EMA), marking a significant barrier that could take time to overcome.

The stock may also be carving a rising wedge off the 2016 low, indicating that gains will come slowly due to the pattern's shallow trajectory. The mixed price structure also raises the odds that upside will eventually fizzle out and generate a dreaded test at the prior low. As a result, careful risk management on long positions is needed, looking to exit positions when more potent resistance comes into play.

On-balance volume (OBV) entered a steep distribution wave at the start of the decade, continuing into August 2015. Subsequent buying pressure lifted the indicator to an all-time high at the end of 2016, marking a highly bullish divergence that predicts price will play catch-up. However, big secondary offerings needed to pay debts during the downtrend may have distorted these readings, lowering their predictive value. (To learn more, check out: Uncover Market Sentiment With On-Balance Volume.)

The Bottom Line

Freeport-McMoran stock has rallied to the highest high since January 2017 and could break out in the coming weeks. Stiff resistance just above $20 could stall that bullish impulse and generate months of sideways action before the next big trend wave, higher or lower. (For additional  reading, check out: Top 5 Copper Stocks for 2017.)

<Disclosure: The author held shares of Freeport-McMoran in a family account at the time of publication.>

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