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 High Wave daily candlestick pattern on 10/21 and a 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 $DXY’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 at Fibozachi 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 $DXY (as well as the TED spread and VIX) and bearish technical developments across global equity markets continue.
Disclosure: no current position