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FCX: Inflationary Goldmine or Deflationary Pyrite ?

|Includes: Freeport-McMoRan Inc. (FCX), GDX, GLD
After detailing what the end of Primary wave 2 will look like on the $DXY and VIX last Thursday morning, accurately diagnosing bearish candlestick patterns across the SPY, SSEC, IYT, XBD, GS, USO, RIMM, DOW, BBH and CELG last Friday evening and highlighting the fifth-of-a-fifth ending diagonal inflection point in BIDU ahead of its earnings call Monday afternoon, 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 (NYSE:FCX). Unfortunately, for longs, the technical picture appears to be resoundingly bearish. 
 
With a high of 84.28 on 10/23/09, FCX fell just 55 Fibonacci cents shy of meeting its 9/02/08 opening price of 84.83, a very important price extreme that continues to provide stiff resistance. After closing at 89.32 on 8/29/08,  FCX gapped lower at the open of the next trading day to the tune of $4.49, or 5.03%; exhibiting what we 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 bottom occurred a Fibonacci 144 + 1 trading days (TD’s) from its all-time closing high of 125.86 on 5/20/08.  Since FCX so clearly observed a harmonic fib ratio of time in its recent past, we at Fibozachi believe that it is only prudent to respect the upcoming 377 TD fractal point that occurs on Friday. Furthermore, yesterday (10/27/09) marked the exact 161.8% time extension of the entirety of Primary wave 1.
 
 
Though it appears to be a strong possibility that Friday may have seen the upper price extreme of Freeport’s corrective bearish rising wedge (Primary wave 2), confirmation will occur with a closing break of the trendlines highlighted above; the first is drawn from the lows of 12/05/08 to 7/08/09, the second from 7/08/09 to 10/02/09. Without such trendline breaks we must entertain the sizable possibility of secondary Elliott Wave counts, which suggest that FCX could either notch itself one new high within the open range interface of 85 - 88 or simply fail a truncated attempt at one 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 high of 84.28 this past Thursday, FCX had risen 502%. Interestingly enough, that 9/02/08 third-of-a-third point of recognition breakaway gap open of 84.83 is itself 66.6% of 127.24, FCX’s exact all-time-high print; 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 recently plotting a High Wave daily candlestick pattern on 10/21 and a Bearish Cloud Cover on the 23rd, FCX had given technicians ample warning to have already begun drilling down into the hourly. FCX plotted an hourly Tweezer Top candlestick pattern by 11: 00 am on the 23rd, which signaled a marked shift in the character inherent within is price action; and after an initial series of 1’s and 2’s plotted a very decisive Bearish Harami candle by 11:00 am on the 26th.
 
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 bottom within the next two weeks on a close above 77.48.
 
Furthermore, the excellent technically oriented fundamental research posted by Tyler Durden of Zero Hedge one week ago, courtesy of Nomura (http://www.zerohedge.com/article/aig-casino-hot-potato-darling-806-monthly-turnover-ratio), shows us that FCX has the 17th highest “trading value” of all global securities. This insightful metric is a measure of the 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 sensational research from Tyler Durden of Zero Hedge, courtesy of Nomura, confirms for us at Fibozachi that FCX is truly a hot potato of hedge fund activity. 
 
This important technically oriented fundamental metric of extraordinarily high average monthly turnover strongly underscores that there is the potential for yet another bout of roach motel panic selling pressure should FCX’s short-term volatility and average true range begin re-expanding once again to the downside. 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 Ken Heebner’s CMG 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 in Elliott Wave parlance) there is a much greater potential for explosive thrusts in price action to the downside, should the most recent bullish technical developments in the $DXY (as well as the TED spread and VIX) and bearish technical developments in global equity markets continue.
 
For similar technical takes, market calls and insights, please join us throughout the day in our new Worden TeleChart club, Fibozachi, and view our analytical work and proprietary technical indicator packages at our new website, www.Fibozachi.com; where we strive to help individual traders identify, isolate, time, execute and manage ideal trades that exhibit a multiple confluence of high probability statistically quantified setups across various methodologies of technical analysis.


Disclosure: long FCX puts