FCX: In Crash Recovery

Late Spring, and throughout the Summer of 2010, FCX formed a Cup & Handle base that had a Bull Flag nested within it. To the left of that solid base, there was a Bearish Rising Channel that had formed during the Winter and broke down early Spring, but it didn't represent a lot of resistance because the September 3, 2010 breakout of the nested Cup & Handle pattern occurred near the upper end of that Bearish Rising Channel. Once the 44.15 high of that Channel got taken out to the upside, everyone who had been trapped in it, holding the stock long, was made whole and was holding a winner. The lack of selling pressure contributed to FCX being able to score a gain of 116% off the July, 2010 low of 28.35.

In the current time-frame, the picture is quite different.



As we approach year-end, there is a huge overhang of selling pressure from the initial crash from the 56.78 high of the Bearish Wolfe Wave to 41.20, which broke the 2011 Falling Wedge, and then nearer-term, from the second crash that occurred from the 48.60 high of the weak base that The Bulls tried to establish after the Falling Wedge breakdown, to the 28.85 low of the Bullish Key Reversal on October 4.

The Bullish Key Reversal low of 28.85 could end up being significant if it holds up because it would mean that any Bears waiting for the Summer, 2010 low of 28.35 to have a better retest would be disappointed.

If The Bullish Key Reversal low of 28.85 does get taken down, that could spell trouble for The Bulls because it "shouldn't," and they likely would lose confidence.

In my view, The Bulls would do well to spend the remainder of 2011 establishing a nice base from which to launch a rally into all of that overhead resistance, which likely will be daunting. Year-end tax loss selling won't help, either. Some players will sell FCX and take the loss to offset gains in other stocks. The Bulls need to "have game" to attack the resistance.

For example:



Late Thursday afternoon, The Bulls established at Triple Bottom at 34.40 ...34.38 ...34.40 (red arrows at the horizontal red line). That resulted in a pop to the upside at the open on Friday, but it was a "Gap And Crap." The gap got filled and The Bulls rallied again, but the effort was no good. Off the 28.85 Key Reversal low, the Bulls had rallied 23.8% and ran out of steam. The Bears broke the 34.38-34.40 Triple Bottom, and down she went.

After taking a breather, though, The Bulls formed an Ascending Triangle (pattern in white), a breakout of which would put a target of 34.81 IN PLAY.

34.19 - The more conservative of the 34.19 and 34.20 highs
33.57 - The low

34.19 - 33.57 = 0.62 points of upside on a breakout.

34.19 + 0.62 = Target: 34.81 IN PLAY

After Data Point #4 got put in, The Bulls temporized around the EMAs (up arrow), chomping on spinach to gain some strength for the rally. I liked that and bought 5,000 shares at 33.92.

The pattern can't "know" when it breaks out that there is IMMEDIATE resistance at 34.38-34.40 from the mid-session breakdown. It's just a pattern that gives us the suggestion of a target, based on a measured move using the math above. We, as analysts, have to decide how likely it is that the target will get MADE, based on what else we're seeing that the pattern CAN'T see.

"Former support 'should be' resistance on any rally." I sold at 34.39, at the 34.38-34.40 resistance, not expecting the 34.81 target to get MADE.



It didn't. The Ascending Triangle rally high of 34.46 (red arrow) got put in seconds after I sold, then FCX tumbled back below the breakout, failed on an attempt to get back above the breakout (yellow arrow), then sold off again.

The Bulls have some work to do, building good bases and breaking of them. The base-building process can be slow-w-w, but again, the Bullish Key Reversal looks good if it holds up.



Gain: $2,350