Freeport-McMoRan And Copper May Go Down Together

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


  • 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 »


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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


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


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


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


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.

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This article was written by

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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. 


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