Freeport-McMoRan Inc. (FCX) shares rallied strongly in the fourth quarter of 2017, hitting a 2.5-year high as the year drew to a close. It has been all downhill since that time, with the copper and gold giant losing more than 20% in a high-volume decline that has reduced the supply of committed shareholders. The downturn is now approaching major support below $14, but relative strength readings aren't cooperating yet, stuck in a bearish cycle that might not end until the third quarter.

The uptrend between early 2016 and the end of 2017 ended at 200-week exponential moving average (EMA) resistance above $18.00, marking the first test at that intermediate barrier since 2014. Resistance at the 200-month EMA is situated three points higher, suggesting that the next bounce will reach that level, which may signal the end of the multi-year recovery. That's useful information because a position trade might generate more reliable profits in the coming months than a buy-and-hold strategy. (See also: Commodities: Copper.)

FCX Long-Term Chart (2008 – 2018)

The stock topped out in the mid-$60s in May 2008 following a seven-year uptrend and plunged with world markets during the economic collapse. Selling pressure ended at a six-year low in the single digits, giving way to a bounce that completed a massive V-shaped recovery that ended within two points of the prior high in January 2011. Price action then eased into a broad topping pattern that broke support in the upper-$20s in the fourth quarter of 2014. That level now marks a barrier that isn't likely to be mounted for the rest of this decade. 

The subsequent decline unfolded in an Elliott five-wave pattern that came to rest at a 15-year low in January 2016. The subsequent bounce retraced the fifth wave quickly, building a smaller-scale V-shaped pattern that stalled at $14.06 in April 2016. The uptrend then eased into a shallow rising channel that is still in place more than two years later. Support below $14 and resistance above $20 define range boundaries that have generated countless bad trading decisions since 2016.

[Learn more about recognizing chart patterns in Chapter 5 of the Technical Analysis course on the Investopedia Academy]

FCX Short-Term Chart (2016 – 2018)

The first rally wave off the 2016 low ended after penetrating the 200-day EMA, yielding shallow upside that has crisscrossed that key level repeatedly into the second quarter of 2018. The moving average flatlined near $11 at the time of the first cross and has risen slowly in the past two years, now located near $16.50. This slow pace has punished shareholders who expected the uptrend to sit comfortably in the mid-$20s by this point in time.

The two-year bounce still hasn't reached the .382 Fibonacci sell-off retracement level above $25.50, marking a bearish divergence due to much stronger recovery waves in other commodity-focused equities. In turn, this suggests that the long-term downtrend still hasn't come to an end, opening the door to a potential test at the 2016 low. Fortunately, folks with long-side exposure should have plenty of time to close positions if that bearish scenario unfolds in the coming years.

On-balance volume (OBV) broke out above the 2009 high in the second half of 2016, but the company had liquidity issues after the bear market and issued a number of secondary offerings that may have skewed volume data. A downturn into May 2017 posted a higher low ahead of a bounce that fell well short of the 2016 high, even though price traded nearly four points higher at the rally's peak.

For now, the stock needs to hold channel support and bounce strongly off that price level into the start of 2019. Political gamesmanship could negatively affect this delicate equation, with the two-year copper rally making no headway in the past nine months, held down by the threat of trade wars that would lower worldwide industrial production. With this in mind, a breakdown toward $13 would set off aggressive sell signals that could presage a drop into the single digits. (For more, see: Freeport Slides on Indonesia Environment Demands, Weaker Outlook.)

The Bottom Line

Freeport stock has sold off since January 2018 and is now approaching two-year channel support. However, the monthly stochastics oscillator is engaged in a bearish cycle that still hasn't reached the oversold level, telling sidelined players that the time to reload long positions hasn't come yet. (For additional reading, check out: 9 Stock Picks for Outsized Gains: Goldman.)

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