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Slicing Freeport-McMoRan A Couple Of Different Ways

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Freeport-McMoRan (NYSE: FCX) engages in the mining of mineral properties in the United States, Indonesia, Peru, and Chile. The company primarily explores for copper, gold, molybdenum, silver, and other metals, as well as oil and gas.

To some degree, there is good correlation between FCX, the world’s largest copper producer and copper prices. Several months ago, investors have turned bearish on copper, cutting their long positions and reversed the trade by going short putting on fresh bets for lower prices. The bearish sentiment had everything to do with COVID-19 and its adverse affects on China's growth.

In the US, for example, United Airlines withdrew its full-year 2020 forecast and said it was seeing a roughly 100% decline in near-term demand to China. Mastercard lowered their upcoming quarterly earnings as they anticipate that customers will spend less on vacations, concerts and at restaurants.

But boy have times changed in just a couple of months. Things are still bad, but many think the worse is behind us.

Momentum investing revolves around the idea of following a stock's recent trend in either direction. In the 'long' context, investors will be essentially be "buying high, but hoping to sell even higher." With this methodology, taking advantage of trends in a stock's price is key; once a stock establishes a course, it is more than likely to continue moving that way.

For FCX, shares are up 6.58% over the past week while the Zacks Mining - Non Ferrous industry is up 4.71% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 13.33% compares favorably with the industry's 4.24% performance as well.

While any stock can see a spike in price, it takes a real winner to consistently outperform the market. Over the past quarter, shares of Freeport-McMoRan have risen 53.61%, and are up 13.64% in the last year. In comparison, the S&P 500 has only moved 20.21% and 8.3%, respectively.

Source

Last month, copper got some good news when the Chinese construction PMI increased to 60.8 in May versus 59.7 in April. Yes, the move wasn’t great, but more importantly, denotes that copper demand remains firm in China as the post COVID-19 lockdown recovery continues. At the time, Copper prices were approaching a major resistance/support band at $2.50,

but because the US dollar has been selling off and since copper is priced in US dollars, making the US dollar and copper are inversely correlated, copper prices have breached the major resistance/support band and has continued moving higher.

Yesterday, Freeport-McMoRan Inc. announced that they will report about 8% more copper sales volume and 10% more gold in the second quarter than the company projected in April. On the news, the stock rose almost 10%.

So I looked at going long the stock from two different angles.

TTM Squeeze

The TTM Squeeze Oscillator measures the strength of the market and its momentum and uses the Bollinger Bands and the Keltner Channel as its basis. When the Markets are consolidating, the Bollinger Bands are inside the Keltner Bands and the Markets are set to be in a squeezing, building up energy. However, when volatility increases, the Bollinger Bands widen and engulf the Keltner channel, it is this switch when the Markets transitions from consolidation, to a break out, to a trending Market. The TTM Squeeze indicator attempts to alert you this event happens.

Yesterday the TTM Squeeze gave me a signal on the daily chart to go long.

Synthetic Long Stock

Synthetic stock options are option strategies that mimic the potential of either buying or selling a stock using call and put options. A Synthetic Long Stock involves buying a call option and selling a put option. In the case of FCX, I was looking about buying 1 call January 2021 call option and selling 2 January 2021 put options to cover the price of the call option with the hope the price would continue to move higher, resulting in the call option appreciating and the put options losing value.

But then I zoomed out to the weekly chart and didn't like the price action just above current price as price now has to deal with a major resistance/support band. To me the risks outweigh the rewards so I have to pass on FCX.

This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.

Posted Using LeoFinance