Shares of copper producer Freeport-McMoRan ( FCX) were downgraded to “neutral” by a sell-side analyst Wednesday who also cut their price target to $28.
Let’s examine FCX and also take a longer look at copper futures to see what may play out in the months ahead.
Every media outlet has written in recent weeks about the “rapid demand destruction in commodities” but I think they are missing a key conclusion.
Let’s dive into the charts and I’ll show you what I mean.
In the daily bar chart of FCX, below, we can see that the share price of FCX was cut in half in just three months. Amazing. Shocking. The shares are trading below the declining 50-day moving average line and the slower-to-react 200-day moving average line has begun to weaken.
The trading volume has been heavy since the middle of April and tells me that traders voted with their feet. The trading volume in the past two to three weeks has been particularly heavy and could represent a shift in ownership from weak hands to stronger hands. A 50% price decline often gets the attention of long-term investors.
The On-Balance-Volume (OBV) line has been in a decline for the past year. The 12-day price momentum study shows a low in May and an almost equal low in late June suggesting a bullish divergence — prices making lower lows but the indicator doing something else.
In the weekly Japanese candlestick chart of FCX, below, we see a mixed picture. Prices are in a decline and trade below the declining 40-week moving average line. The two most recent candles are a doji and a spinning top. Both patterns could be part of a bottom reversal but that depends on the candle this week.
The weekly OBV line only shows three months of weakness. The 12-week price momentum study shows improvement too.
In this daily Point and Figure chart of FCX, below, we can see that prices reached a downside price target in the $30 area.
In this weekly Point and Figure chart of FCX, below, we can see a potential downside price target in the $16 area. Maybe.
In this long-term close only chart of the nearby copper futures, below, we can see how prices broke out in late 2020 from a major bottom formation. Prices doubled into early 2022 before their rapid reversal back to the top of the base in the $3.25 area — the highs of early 2018.
The issue that the financial media is ignoring is that without commodity prices staying high enough and long enough there is not going to be meaningful investment in future mines or oil wells or farms, etc. That condition will produce higher commodity prices in the years ahead, in my humble opinion.
Bottom-line strategy: FCX has been cut in half so I am not a bear at this juncture. Prices could rebase at these levels and I will let others do that before I recommending purchase.
