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FCX: Inflationary Goldmine or Deflationary Pyrite?

Fibozachi's picture




 

Fibozachi

After highlighting the extreme market internal readings that registered
on both Wednesday and Friday of last week
, we at Fibozachi thought it
is as good a time as ever to turn our attention back towards the hedge
fund hot potato that is Freeport-McMoRan (FCX).  Unfortunately, for
longs, the technical picture appears to be rapidly deteriorating,
developing an increasingly bearish profile.  

In registering an intra-day high of 84.28 on 10/23/09, Freeport (FCX)
fell just 55 Fibonacci cents shy of meeting its 9/02/08 opening print
of 84.83, a very important price extreme from the crash last Fall that
still continues to provide stiff resistance.  After closing at 89.32 on
8/29/08,  FCX gapped lower on the open of the next trading day to the
tune of $4.49, or 5.03%; exhibiting what Elliott Wave practitioners
term a “third-of-a-third point of recognition” with an exceedingly
bearish breakaway gap, that kicked off an additional 83% crash into
Freeport’s 12/10/08 intra-day low of 15.70.  

That Primary wave 1 (circle) bottom occurred on 12/10/08, a Fibonacci
144 + 1 trading days (TD’s) from Freeport’s all-time closing high of
125.86 on 5/20/08.  And since FCX so clearly observed a naturally
harmonic fib ratio of time in its recent past, we at Fibozachi believe
that it is only prudent to respect the 377 TD fractal point that just
plotted this past Friday, 10/30.  When Fibonacci time cycles line up
together in a multiple confluence of cyclicality, they often serve as
either points of inflection or acceleration with the longer-term
trend.  Furthermore, this past Tuesday, 10/27, marked the exact 161.8%
time extension of the entirety of Primary wave 1 (circle); when we
refer to naturally harmonic cyclicality, this is precisely what we
mean.  In contrast, harmonic symmetry refers to either equality within
volume patterns or price structures.

Though there appears to be an increasingly strong possibility that
10/23/09 may have marked an upper price extreme for Freeport’s
corrective bearish rising wedge pattern (and with it the entirety of
Primary wave 2 (circle)), only a closing break of the two “key” daily
trendlines highlighted above will provide an initial confirmation of a
significant downturn.  The first upward sloping trendline connects the
lows of 12/05/08 and 7/08/09, the second upward sloping trendline
connects the lows of 7/08/09 and 10/02/09.  Without a break of these
“key” daily trendlines, we must entertain the possibilities presented
by both the first and second alternate Elliott Wave counts.  Such
alternate counts suggest that FCX could notch itself either one more
new high within an open range interface that surrounds 85 - 88 or
simply fail a truncated attempt at a new high over the next 2 weeks,
prior to fulfilling its long-standing date with much lower prices to
come.

From its 12/05/08, closing low of 16.80 to its most recent upper
extreme of 84.28 on 10/23/09, FCX scorched its way higher to the tune
of 502% over 222 trading days; registering a 2.26% average daily rate of change
(ROC) during this hellacious period.  Yet, while at first such
impulsive price action may seemingly appear to be the onset of a new
bull leg higher, upon further inspection we find that there is a very
important cluster of lateral resistance surrounding a long-term
retracement level just overhead.  And in a notably poetic coincidence,
Freeport’s 9/02/08 third-of-a-third point of recognition breakaway gap
opening print of 84.83 is itself 66.6% of 127.24, FCX’s all-time
intra-day high; a deviously devilish ratio that, when weighed alongside
the multiple confluence of secondary cyclic activity detailed above, is
most certainly anything but an inviting welcome point for longs.

After plotting a daily High Wave candlestick pattern on 10/21 and a
daily Bearish Cloud Cover pattern on the 23rd, FCX had given technicians yet
another reason to begin examining the character of hourly price
structure.  By 11 am on the 23rd, Freeport had plotted an hourly
Tweezer Top candlestick pattern, which signaled a marked shift in the
character inherent within its price action;  and after an initial
series of 1’s and 2’s by 11:00 am on the 26th, FCX had plotted an
ominous hourly Bearish Harami candle.  The next immediate bar confirmed
the bearish intent of the hourly profile by exhibiting a wide-range
bearish candle that shed yet another 2.81% from Freeport by 12:00 pm.   

From our technical vantage point, we at Fibozachi cannot underscore
enough our belief that FCX appears to be not only a very poor long
selection but also a very juicy short candidate.  This viewpoint is
only further magnified by the Dollar's recent exhibition of a multitude
of extremely bullish initial signals across technical methodologies and
the distinct possibility of it confirming a significant multi-year
bottom within the next two weeks on any close above 77.48.

Below is a weekly picture of FCX plotted with a range-based Dynamic Trailing Stop (DTS) and FIBs™, which are a unique improvement upon
Bollinger Bands that help to identify high probability breakouts and
define support across bullish, bearish and neutral profiles.  One can
see how the strong upward breakout on 2/6/09 was the very first bar to
close above the Upper FIB as well as the very first bar to close above
the DTS.  In the past 8 months, FCX has enjoyed a seemingly relentless
rally that has failed to close below either the Lower FIB or the DTS.  

Therefore, our sights remain squarely focused on the area surrounding
the 68.17 level, where the DTS currently resides and where a closing
break of support would serve as a very strong secondary indication of a
significant reversal in price action (after the two “key” daily
trendlines discussed above).  If this level does give way then the next
immediate support zone surrounds 64.17, where the Lower FIB currently
resides.  Similarly, a close below each of these important support
levels would serve as a very strong secondary indication of a firmly
bearish trend taking shape that would effectively wash away most
remaining arguments for any bullish intent within FCX over the
intermediate (1-3 month) to longer-term (3-6+ month) horizon.

 

Furthermore, the excellent technically oriented fundamental research
posted on 10/19 by Tyler Durden of Zero Hedge, courtesy of Nomura
(http://www.zerohedge.com/article/aig-casino-hot-potato-darling-806-monthly-turnover-ratio),
shows us that FCX enjoys the 17th highest “trading value” of all global
securities.  This extraordinarily insightful metric is a measure of an
individual issue’s average monthly turnover ratio as a function of
dollar equivalent trading values with market capitalization data from
Bloomberg and other financial data providers based on month-end share
prices.  With an average monthly turnover ratio of 67.2% (which
effectively means that 67.2% of the entire issue’s ownership base is
changing hands on a monthly basis), this actionable research from Tyler
Durden
of Zero Hedge, courtesy of Nomura, confirms for us
that Freeport-McMoRan (FCX) is truly a hot potato of hedge fund
activity.  

We at Fibozachi firmly believe that this noteworthy technically
oriented fundamental metric of extraordinarily high average monthly
turnover strongly underscores the potential for yet another bout of
roach motel panic selling pressure should FCX’s short-term volatility
and average true range (ATR) begin re-expanding once again to the
downside along with the confirmation of a multi-year Primary wave 2
(circle) bottom in everyone’s favorite punching bag, the US Dollar. 
This powder keg becomes especially apparent when viewed alongside an
extremely high institutional sponsorship ratio of 79.8%, which,
according to Morningstar, still boasts of large activist shareholders
like Atticus and Jana as well as trigger-happy holders such as Louis
Bacon’s Moore Capital and Ken Heebner’s CGM Focus Fund.  

 

Ultimately, our combination of inter-market analysis and comprehensive
technical analysis at Fibozachi suggests extreme caution right now for
any FCX longs.  Quite simply, at the current juncture (the very
possible precipice of Primary wave 3 (circle) in Elliott Wave parlance
across financial markets) there is a much greater potential for
explosive thrusts in price action to the downside.  This concern would
be greatly amplified if the most recent bullish technical developments
in the Dollar (as well as the TED spread and VIX) and bearish technical
developments across global equity markets continue.

 

Disclosure: no current position

 

For similar technical takes, market calls and insights, please visit
our brand new website, www.fibozachi.com; where you can view all of our most
recent analytical work,  as well as detailed explanations into both the
unique design development of and the alterations to various technical
methodologies within the proprietary technical indicator packages that
we use each and every day to perform a comprehensive technical analysis
of stocks, options, ETFs, futures and FOREX across interval periods of
time, tick and volume.

 

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Mon, 11/02/2009 - 17:59 | 117598 time123
time123's picture

Yes, FCX looks overpriced and possibly will consolidate a bit from here. But as long as the U.S. dollar is contained (or even moves lower) copper and gold could rise further and FCX will then resume its uptrend. 

I would not short it right now.

time123

admin: http://invetrics.com

 

Mon, 11/02/2009 - 14:48 | 117391 Anonymous
Anonymous's picture

Poetry.

Mon, 11/02/2009 - 14:09 | 117352 Bloody_Hell
Bloody_Hell's picture

"multiple confluence of cyclicality"

how could it get any better than that.

the most magnificent phrase I've read in many moons. if only I knew what it meant.

 

 

Mon, 11/02/2009 - 12:40 | 117266 bugs_
bugs_'s picture

I think the primary issue behind FCX is the political

stability of where their mines are located.

Mon, 11/02/2009 - 12:21 | 117238 RowdyRoddyPiper
RowdyRoddyPiper's picture

"Excuse me Teacher, May I be excused. My brain is full."

jeez louise. The moon is in the 7th house and jupiter is up my ass. Whatever.  Teck Resources can probably be singing the same tune.  Who needs the 'ol Vancouver stock casino when we have Wall Street!

Mon, 11/02/2009 - 14:56 | 117406 walküre
walküre's picture

LOL

+1000

Who came first? Did Wall Street p&d junkies go to Salt Lake or Vancouver stock casino school or vv?

Clearly, the ramp job since March on green fumes was the biggest promo effort EVER!

Congrats and hats off to the pumpers at the White House, the Treasury, the Fed and of course the political whores. They're all complicit if there would ever be a broad SEC investigation. Won't happen.

** Money out of thin air is worthless. More and more people will realize that and jump into gold - both feet **

 

Mon, 11/02/2009 - 12:17 | 117232 digalert
digalert's picture

My two cents on FCX, don't fight the tape. This one seems to have ebbs and flows with the daily copper price. I believe the decline they reported last was due to copper price, they made up for it with Gold, and for what it's worth, they just reinstated their dividend.

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