While some of the silver and gold miners have not been trading in a tight relationship to the precious metals themselves, copper miner Freeport McMoRan (FCX) has been pretty steadily with the price of copper.
This chart shows how FCX has traded against copper over the past two years. Although the chart presents the entire two years, I color-coded certain points on the chart to present some additional perspective on how FCX has been trading in specific timeframes.
The grey dots show the stock vs. copper from May 2009 to July 2010. The tan dots show the relationship from July 2010 through March 2010. Recall that back in August, Ben Bernanke made it clear that the Fed was going to maintain quantitative easing. Finally, the blue dots show the relationship between FCX and copper over the past month. Although commodities overall have been exceedingly volatile, FCX is still trading in a tight relationship to the metal.
Eliminating the distractions of the different colored dots, here’s the same chart with a regression channel plotted.
The slope of the regression line (the solid line on the chart) is approximately 14, representing the relationship between FCX and copper.
If you believe this relationship will continue, then you can apply this formula for potential buy and sell levels. Multiply the price of copper by 14 and subtract about $12. That would be a point to consider a long position. Use the same multiplier and then add $1 as a sell target. There’s no guarantee of profitability, of course, because copper itself could move against your position and the relationship between the stock and the metal could change.
Here’s a table that shows potential buy and sell targets based on that rough formula. You can see it roughly corresponds to the the dashed lines in the chart above.
I’m long FCX for the long-term, but these levels could provide some near-term trading opportunities.
Disclosure: I am long FCX.