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The South American Riot Trade (FCX)

Posted on October 31, 2019

In mid-summer we played mega-miner Freeport MacMoRan (NYSE:FCX) for a doozy of a profit.  And today, we return again to the thieves of Indonesia to do it again.

Now, when we use the friendly monkier ‘thieves’, we do so, of course, with tongue firmly in cheek, the better not to upset or otherwise needle our corporate overlords.

Thieves is a term of endearment, after all, for those at the head of the corporate dragon, who, in fact, bear responsibility for the better part of the killing, torture, oppression and the rest of the sodomite panoply of sins that affect the world.

But more on that another time.

Today…

We like FCX because it moves.

Every few months finds that stock some 20% to 30% distant from where it stood before, and we say that’s also going to be the case when New Year’s rolls around, and we’re all buckling our galoshes and sporting woolen mittens in the depths of a Dr. Zhivago winter.

FCX, of course, specializes in copper, and the price of that metal has several important drivers now pushing it in a bullish direction.

The first is Chile.

Riots in that country have drawn unions from the world’s largest copper producer into their orbit, meaning production delays and potential shortfalls will push prices northward.

The second is trade talks with China.

There, too, we have leaks of preliminary dealings that could immediately unshackle the price of copper and send it significantly higher.

Copper prices are broadly tied to global growth, as you know, and there, too, we’re seeing ‘green shoots’ – despite yesterday’s disappointing (but better than expected) 1.9% GDP number.

Here’s a chart of his orangeness for the last year –

Technically, there are a number of bullish indications here –

  • First, an eight month falling wedge pattern (in red) appears to be complete,
  • With a breakout occurring at the beginning of last week (in blue).
  • Along with that, both RSI and MACD have surfaced in the last few weeks (in black), indicating momentum is now firmly in the bulls’ hands.
  • And finally, all of this occurred against a backdrop of positive divergence (in green), indicative of a loss of selling momentum since at least June.

Altogether, a pretty constructive setup for the copper bulls, and one we believe bodes well for the Freeports of the world.

Before we look at the company’s chart, though, fundamentally, the stock also looks sound.  It trades with a 2% yield, a P/E of just 8.1 and a P/B of 1.5.

Nothing expensive about that.

And now the technicals.

This is Freeport stock since the spring –

Consider –

  1. Most important here is the breakout above the down-sloping trendline (in blue).
  2. This occurred directly after a massive volume spike (in black) off the bottom of the move some three weeks back.
  3. Also, two sessions ago, MACD confirmed RSI’s break above her ‘waterline’, giving the bulls an all-go signal for technical buying (far right, at bottom).

It may not take too long to capitalize on this one, but we’re going to give it a good length before expiry.

Like this –

We’re selling PUT spreads and buying a CALL.

A Jew and His Gold recommends you consider selling two (2) FCX June 19th 9 PUTs for $0.77 each and buying two (2) FCX June 19th 7 PUTs for $0.26 each.  Credit on the spreads is $1.02.  Use those proceeds to purchase the FCX June 19th 11 CALL for $0.99.  Total credit on the affair is $0.03.

Many happy returns,

Matt McAbby

 

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