Despite the March 2020 Covid selloff, Freeport-McMoRan (NYSE:FCX) is trading significantly higher since we shared our last bullish update on it in December, 2019. As the price of copper soared, FCX soared with it to as high as $46.10 in May, 2021.
However, no trend lasts forever and Freeport's rally was no exception. The stock closed at $37.74 yesterday, down 18.1% from its high six months ago. And while some might see this pullback as a buying opportunity, we beg to differ. As usual, the reason for our skepticism has more to do with the Elliott Wave chart below than with the economy or something else.
The hourly chart of Freeport stock reveals a clear 5-3 wave cycle, formed by a five-wave impulse in wave (1/A) and an expanding flat correction in (2/B). Within wave (1/A) it is interesting to note that wave 2 is a running flat and wave 5—an expanding ending diagonal.
Freeport To Shed Over A Fifth Of Its Market Cap
Wave (2/B), in turn, is a textbook flat of the expanding variety. Wave A consists of a simple a-b-c zigzag and so does wave B, which falls to a new low. And C is easily recognized as an impulse pattern, labeled i-ii-iii-iv-v. The bearish reversal that occurred shortly after the price touched the 61.8% Fibonacci level must be the start of wave (3/C).
If this count is correct, we can expect more weakness in wave (3/C) toward a new low. Since wave B of (2/B) formed a bottom at $30.02, it makes sense for the bears to aim at targets below that level. As long as the stock trades below $41.59, Freeport can be expected to lose a fifth or more of its market value.