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Robert Edwards
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Contrarian daytrading technician who specializes in locating high probability short term trades while predicting price movement directions with over 85% accuracy. Most of my trading involves either extremely short term micro scalping of stocks or commodities (using 1 minute bar charts), or swing... More
  • Freeport-McMoran Copper & Gold Inc. (FCX) Is Trading At Long-Term Support 11 comments
    Apr 17, 2013 6:47 PM | about stocks: FCX

    Freeport-McMoRan Copper & Gold Inc. (FCX) will be coming out with earnings on the morning of April 18, 2013. Due to recent weakness in copper prices, revenues are likely to miss and it might be a challenge to meet current earnings expectations. However, rarely have I found a stock that has been decimated so thoroughly in the days just prior to earnings being announced. The stock closed at 33.45 on April 9, 2013, just 9 days ago. And now on the eve of earnings, we hit a low of 27.52 and closed 28.00.

    At Long-Term Support

    On Oct. 3, 2011 we hit a low of 27.50, which was down from 54 just ten weeks before. Three months later FCX was back at 47. Now we have hit a low today of 27.52 and are down from 42 achieved 6 months ago. Although we could go lower, the rebound from current prices should at least retrace to the high 30s if not 40s. The current PE is ridiculously low at less than 9 and a return to a PE of 14 would mean a 50% rally from current levels with no change to the earnings picture. And just imagine when copper prices recover sometime down the road.

    Back in June 2010, FCX traded down to 25.93, just under 26, and then started a rally that culminated in a high of 57 just 6 months later. You see, every time FCX trades below 30, it does not stay under 30 more than 2-4 weeks and then has a substantial rally. We may or may not be at the bottom now at 28, but the ultimate low on this downturn should not be more than a couple dollars away. And after hitting the bottom, this stock should recover to at least 45 if not higher within the next 3 to 6 months if history is any guide. My advice is to buy in the pre-market prior to earnings and to add on any post earnings weakness. This stock was cheap at 31 and now at 28 and below it is getting ridiculously cheap. FCX is being drug down along with all materials and mining stocks thanks a lot to the recent crash in the gold market. It is time to start picking up the pieces and taking advantage of prices that are not justified in the long-term.

    Disclosure: I am long FCX.

    Stocks: FCX
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Comments (11)
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  • I like your analysis very much. Results are not out yet, but presumably will dissappoint, some of it is already in the price. I would add aggresively around $25.
    After reading your profile I was curious to know how do you sell an out of the money strangle and make 1% return a week? Have you done a column about it?
    17 Apr 2013, 07:17 PM Reply Like
  • Author’s reply » Have not done a column about it. I sell strangles in live cattle and lean hogs commodities, selling far out of the money calls and puts. The strategy can be done in certain stocks as well if trading in a margin account. Have not been doing it much lately as I have concentrated on daytrading lean hogs by scalping 4 to 7 ticks at a time several times a day and/or night (trades 24 hours you know). Also currently daytrading micro gold contracts for 2-3 dollar moves up and down.
    17 Apr 2013, 07:31 PM Reply Like
  • Author’s reply » Today FCX closed up 3 straight days post earnings and it appears FCX is trying to establish a short-term bottom. We could continue to climb higher or we might make a marginal new low...but in any case, this is proving to be an excellent buy area to own FCX under 30 and especially under 28!
    22 Apr 2013, 07:30 PM Reply Like
  • I agree. However, looking at the support areas since 2011, we could test the $25.85 area. As the stock is basing (april 2013), this is a good area to add or start a position if you want to be in the stock.
    23 Apr 2013, 09:00 AM Reply Like
  • Author’s reply » I think it all comes down to copper. If copper can hold at $3.00 then FCX will base right in this $28 area. However, if copper prices fall down to lower support at $2.75 then we might have to trade down closer to $26 before this stock turns around. Also in addition to copper, FCX is affected by gold prices and I want to see $1,300 support hold in gold. If that support is taken out then FCX could trade lower. In any case, $28 or $26, with the dividend that this stock pays, it is not a bad investment for a move to $38 to $44 or higher.
    23 Apr 2013, 10:39 PM Reply Like
  • I agree with your comment of April 23. However, today April 29 the stock closed just above $30. Buying this stock on pullbacks might test our patience. The $26 to $28 area is a decent range to buy this stock. Also note that the $30 area is now new resistance. I think the stock will be trading the $28-$31 range before it makes a move.
    29 Apr 2013, 11:15 PM Reply Like
  • Author’s reply » I took profits on my longs today but am staying short 29 strike puts that will put me long the stock again on dips below 29, or let me pocket the premium if FCX holds above 29.
    29 Apr 2013, 11:25 PM Reply Like
  • I do like your strike point.
    I am short the 27 puts since march. I feel the this strike gives me an extra layer of protection in case of a broad market sell-off. It's hard to imagine FCX below $25 at this point.
    2 May 2013, 09:05 AM Reply Like
  • Author’s reply » I sell closer strikes because I do not mind getting long the stock at a little discount from current prices and I sell 1 to 2 weeks out so I get the time decay working strongly in my favor, being a seller of premium. I don't like having my money tied up for such a long time and like making several weekly or biweekly trades that add up in a quarter and year. If I am exercised and am put long, then I immediately sell calls and hope for a small rally to get the shares called away.
    2 May 2013, 10:46 AM Reply Like
  • I prefer more strikes away from the current price and longer expirations, this will give you similar option premiums and less risk of assignment. The reason I dont favor so much your strategy is that if you get assigned, you then start doctoring the trade by selling calls. This means, you end up owning the stock at a higher price than I would have paid with the lower strike and then you run the risk of selling the covered calls and turn this into a spiral of more "doctor" trades if the you dont get the price move you "hope" for. This strategy works some of the time, but when it doesn't it really slows you down; i.e. spend time on a stock you didn't mind owning but didn't want to own and you're doing covered calls to break even or get out.... for all this trouble, maybe you should have closed the put at a reasonable loss before the assignment came into play.
    I hope you dont mind my comment because I would like to know if this has been your experience or if you have been able to profit from the covered calls after the put assignment. What would you say your rate of success has been? Thanks...
    8 May 2013, 09:59 PM Reply Like
  • Author’s reply » I am a very, very active trader, making 50 to 100 trades every day, sometimes more. What I do may not be practical for others.


    If FCX or whatever stock I am short puts, starts going down to where it appears I am going to get exercised, I sell naked calls to balance the trade so that further reduces my average buying price.


    When my close to the market puts go in the money and I get assigned the shares, I sell calls, and I also daytrade the stock heavily to try and get out of the stock without owning it more than a week or two. On any further weakness I immediately dump half my shares, and buy them back at the next support level.


    All strategies have their upside and downside. The good about your strategy is that you rarely get exercised, but you have to hold the puts much longer than I do and you are trading in slow motion, waiting a long time to see results.


    I am so short term, I do weekly option trades but also do lots of trades just on Friday, if conditions are right. I can often figure out early in the day what strike the big guys are trying to pin the stock to. Sometimes I can predict in a few days in advance, but almost always I can see it a few hours before the Friday close. I then try selling calls and puts for 10 to 20 cents on each side of the strike in hopes we close right at the round number strike.
    8 May 2013, 10:22 PM Reply Like
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