Freeport McMoran analysis: does copper demand drive the price?

A breakout in the US Treasury market and the current weakness in the US dollar have helped copper to gain traction

Freeport McMoran is outperforming as the demand for copper is helping to buoy the copper producer. Strong demand for electric cars will require copper to run their engines. Additionally, as the world comes out of its virus lockdown, construction demand will perpetuate. 

Historically, the returns FCX experienced in March have been mixed. The technicals look strong and the trend in the company is likely to be upward sloping.

Goldman’s View

Goldman Sachs sees a very tight copper market where copper stocks held at the London Metals Exchange are very tight. They state that copper’s bull run could continue well into 2022 and forecast that the metal is likely to hit US$10,000 per ton for just the second time in history. Copper peaked above $10,000 per ton in 2011. The breakout in the US Treasury market and the current weakness in the US dollar have helped commodities such as copper to gain traction.

Seasonality

Historically FCX has experienced mixed results in March. Over the past 10 years, the stock price has declined 60 per cent of the time for an average loss of 1.4 per cent. During the past five years, the stock price has declined 80 per cent of the time for an average loss of 0.2 per cent. 

Freeport McMoran technical analysis

FCX has broken out and is poised to test target resistance seen near the highs made in 2014 near $39.22. Support on the stock prices is seen near the 10-week moving average at $29.15. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. The current reading on the fast stochastic is 91, well above the overbought trigger level of 80 which foreshadows a correction. The relative strength index (RSI) is a momentum oscillator is printing a reading of 76, above the overbought trigger level of 70 which could also foreshadow a correction. Medium-term momentum is also positive as the moving average convergence divergence (MACD) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

Freeport McMoran shares: how to trade

The upshot is that copper prices are rising and will likely continue to trend higher as demand remains strong. The upward trend is also buoyed by a commodities supercycle, which has been assisted by a weaker dollar. Goldman Sachs expects copper prices to rise another 20 per cent, which could be the force that drives Freeport McMoran higher. The seasonality of the stock price is mixed during March. The technicals are very strong. The stock price has broken out of a trend line range and has a clear target which is close to the all-time highs. Momentum is positive and prices are overbought.  Look for FCX to consolidate and then rise in March.

Trade Freeport-McMoRan: FCX share price

Freeport-McMoRan
Daily change
37.8
Low: 36.61
High: 37.9

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