Freeport-McMoRan And Copper May Go Down Together

Jun. 29, 2022 2:46 PM ETFreeport-McMoRan Inc. (FCX), HG1:COMJJC34 Comments13 Likes

Summary

  • Copper prices have plunged in recent weeks on fears of a global economic slowdown.
  • Freeport's stock has suffered as a result.
  • Now, an options trader is betting the shares fall below $30 by the middle of August.
  • Looking for higher risk/reward options trading ideas? I offer this and much more at my exclusive investing ideas service, Reading The Markets. Learn More »

Shipwreck

Lisa-Blue/E+ via Getty Images

Freeport-McMoRan's (NYSE:FCX) stock has suffered dramatically in recent weeks, and it may be heading lower still. Copper prices have dropped materially as fears of a global slowdown and a strong dollar have reverberated through the markets. This weakening in copper price is one reason traders may be betting that Freeport stocks will see even lower prices.

Copper prices have the most significant influence on Freeport's stock price. Over the years, copper prices and Freeport's stock price have been highly correlated, and that makes sense since the price of copper influences Freeport's revenue, margins, and earnings.

FCX Chart

Bloomberg

Earnings and sales estimates for Freeport already are starting to be cut for 2022 and 2023. Sales and earnings estimates have only seen a minimal decline, but if copper prices continue to erode, these estimates will likely continue to move lower.

FCX Chart

Bloomberg

One reason copper prices have dropped is due to the economic weakness that has been witnessed in China due to COVID. Additionally, with central banks globally tightening monetary policy, the global economy is slowing quickly and may be heading toward a recession. The other reason is likely due to the strong dollar, which has risen to over 100 on the dollar index. Typically, a stronger dollar can hurt the prices of commodities that are priced in dollars.

Betting Freeport Drops below $30

The negative outlook for copper and the recent decline may be prompting some traders to bet that Freeport's stock will fall further. On June 29, the open interest for the August $25 puts increased by around 14,300 contracts. The data shows the puts were traded on the ASK and were bought for about $0.70 per contract. It implies that Freeport is trading below $24.30 by the expiration date in the middle of August if the puts are held until expiration. It was a decent-sized bearish bet on Freeport, with about $1 million in premiums paid.

Nearing A Break of Support

For now, the stock has been able to find some meaningful support in a region between $30 to $31. That's the critical level. If it should break, Freeport will have much further to drop. That next support level for Freeport doesn't come until $26. The momentum in Freeport is bearish, with an RSI that has been trending lower since peaking above 70 in early March. The RSI is yet another indication that Freeport's stock hasn't bottomed yet.

FCX Chart

TradingView

Copper Looks Negative Too

Copper has a similar technical setup to Freeport, with the chart suggesting the stock isn't finished falling just yet. For now, the shares have found some meaningful support at roughly $3.75. But if that support region shouldn't hold, then the next level of support for copper does not come until it reaches $3.50. Like Freeport, copper's relative strength index is trending lower, suggesting that momentum is bearish.

Copper chart

TradingView

The trends in copper look very weak, and should the global economy continue to slow or enter recession, copper prices are likely to fall even more. That will weigh heavily on Freeport's stock, considering how tightly correlated the two are.

Join Reading The Markets Risk-Free With A Two-Week Trial!

Investing today is more complex than ever. With stocks rising and falling on very little news while doing the opposite of what seems logical. Reading the Markets helps readers cut through all the noise delivering stock ideas and market updates, looking for opportunities.

We use a repeated and detailed process of watching the fundamental trends, technical charts, and options trading data. The process helps isolate and determine where a stock, sector, or market may be heading over various time frames.

To Find Out More Visit Our Home Page





This article was written by

Mott Capital Management profile picture
27.48K Followers
Designed for investors looking for stock ideas and broader market trends.

I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.

I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels. 

Follow

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Additional disclosure: Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer's views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer's analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer's statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

Recommended For You

Comments (34)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.