FCX: The Market's Response To Earnings

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Pre-earnings comment, from April 16:

"Needless to say, The Bulls are very badly positioned heading into earnings. Players who bought FCX for the long-term obviously won't sell into rallies, but many short-term players will. If FCX blows out earnings and beats everyone's expectations, no matter how big the stock gaps up ... to the 53.00 neckline ... to the 55.00 gap ... it will be a gap up directly into a one month overhang of supply (willing sellers, who would like to get out of the stock with a break even, smaller loss, or a small gain)."

After earnings were reported, the high two minutes into trading was 54.90; the session low was 53.05, right at those two key levels that we looked at on April 16, before the release of earnings.

Why wasn't there a better response to the good earnings?

ANSWER: "...it will be a gap up directly into a one month overhang of supply (willing sellers, who would like to get out of the stock with a break even, smaller loss, or a small gain)."

That kind of response has nothing whatsoever to do with things like earnings per share, revenues, margins, cash flow, dividend increases, etc. Longs who were trapped above the 55.06 gap down from April 11, and the three-months worth of longs who have been trapped at higher prices since last winter (the "overhang of sellers" that we've discussed), who failed to take the opportunity to sell on the last rally to 58.75 simply wanted out, irrespective of how good the earnings were. Those players simply want their money back, and many of them sold. Yesterday's "Gap and Crap" selloff is an excellent example of "working off the overhead supply of sellers."

FCX was so badly positioned, technically, at the release of earnings that I would have "sold into strength" on the opening rally I if had a long position (I posted a comment in that regard on the Yahoo FCX Message Board near the open). A giant gap like that into resistance is marked for a strong likelihood of a "Gap And Crap" session. Stocks usually aren't initially successful when they try to bully their way through mulitple levels of resistance, no matter how good the earnings are. The rally usually gets "called back" for some backing and filling of the gap.

In this particularly case, The Bulls got "called back" for Bullying near the 55.00 yardline, and were penalized back to the 53.00 yardline. LOL.

I liked the pullback to the neckline, near 53.00, so I took a position of 500 shares, at 53.09. One of the most bullish things that FCX can do here is NOT fill the gap below the neckline, then move steadily higher. That would re-establish the neckline as support and would be a very strong show of strength. A gap fill seems more likely, but gaps don't "have to" get filled.

No better example of that than the gap up from FCX's July, 2010 release of earnings, which also was a gap higher on better than expected earnings, and which also was a "Gap And Crap" session. Comments are on the chart.







Getting back to yesterday's action, intraday, basis this 5-Minute chart, FCX looked good coming off the neckline retest (the 53.05 low on the session): FCX:

(1) broke out of the Falling Wedge (pattern in white)

(2) successfully retested that breakout (white arrow)

(3) formed and broke out of a little Bull Flag (pattern in orange)

(4) successfully retested the Bull Flag breakout (orange arrow)

(5) moved higher and took out nearby resistance, at 53.65 - 53.67

Very nice!

But, then...

FCX swooned into the close, taking out the 53.32 successful retest of the Bull Flag (UGH), then threatened to take out the 53.20 low of the Bull Flag, which it did in very short order. UGGGH.

I threw in my 500 shares, at 53.24. When Ms. Market tells me that something IS a technical breakout (there were two), and that something IS support (we had two successful retests of the pattern breakouts at the arrows), then Ms. Market turns around and tells me that it ISN'T support any more (the Bull Flag retest low got broken...the bottom of the Bull Flag got broken), I get outta there, regardless of what happens after that. I simply didn't like my position at that point and had my doubts about The Bulls' ability to hold the neckline in this 53.00 area, with no further retest of the gap below it. I hope that they can, but when I have serious enough doubts, which I did, Ye Old Market Market maxim comes to mind:

"When in doubt...get out!" I did. I always can get back in it again.

Overall, despite the black candle in the daily chart, the market's reaction to earnings helped The Bulls to get out of the hole into which they dug themselves on the smackdown from 58.75 to 49.71. Even if the earnings gap gets filled entirely, The Bulls can do some repair work here and move FCX higher.



Gain on the session: $50 (Thank you, Ms. Market, even though it was paltry)
Gain on the 21 FCX trades since March 23: $15,050