Copper Is in a Full Bear Market

Source: Michael Ballanger 08/14/2024

Even though copper prices bottomed on Thursday, Michael Ballanger of GGM Advisory Inc. still thinks Freeport-McMoRan Inc. FCX is a Buy.

Freeport-McMoRan Inc.

Copper prices bottomed on Thursday, August 8, right before the Sunday-Monday crash in the Nikkei and subsequent policy reversal by BoJ Deputy Governor Uchida, so any rallies from here, given the 25% pullback off the May 20 top at $5.199/lb., are going to be seen as bear market rallies.

Nevertheless, you can make a lot of money if you time these rallies properly, with the ideal strategy being ownership of the top copper producer in the world, which is Freeport-McMoRan Inc.

Copper is now in a full-on bear market rally that could possibly tack on another $0.40/lb. from the current $4.03/lb. level at which it now stands, but what is critical is the MACD and MFI indicators where "buy signals" have just been triggered. MFI is coming off a deeply oversold condition, so the rebound looks to be fairly strong.

FCX is coming out of an oversold RSI reading (sub 30) that usually signals an impending turn, and both MACD and the MFI will show "buy signals" by tomorrow's opening. First stop for FCX is the 200-dma at $43.62 followed by the 50-dma at $47.27 and 100-dma at $48.70.

As for the call options, although the November $ 40's are more money, the breakeven for these is $45.70 for FCX, while the breakeven for the November $45 calls is $$47.36. There is certainly better leverage in the 45's if we see a new high above $55.235, but that assumes that copper and FCX move into "bull market resumes" mode, which is entirely possible, but I prefer the more conservative "bear market rally" strategy and a retest of the 50-dma and 100-dma levels that will take the $40's to between $7.27 and $8.70.

The other possible course of action is to go farther out along the time axis and buy the March $45's for $4.30. That would give copper price four additional months to recover the momentum that carried it to all-time highs in May.

Also, since FCX is also a significant gold producer through ownership of the Grasberg Mine in Indonesia, it is noteworthy that gold has closed for a couple of days now above $2,500. If gold is about to embark on the next leg to $2,750-$2,800, this provides another impetus for adding to (or initiating) this trade. Ione way or another, FCX is just about to trigger a MACD crossover and "buy signal," and that should take it up and through the 200-dma at $43.62 very quickly.

In the GGMS 2024 Trading Account

• Add 50 contracts FCX November $40 at $4.70

New ACB for this position is now $4.15. New cash on hand in that account is US$272,227 or 27.1%. First target is 200-dma at $43.62 for the stock and $7.00 for the calls. I will reassess once those levels are achieved.

I remain a bull on copper for a short-term trade and a long-term bull on gold.

Important Disclosures:

1. Michael Ballanger: I, or members of my immediate household or family, own securities of: Freeport-McMoRan Inc. I determined which companies would be included in this article based on my research and understanding of the sector.
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Michael Ballanger Disclosures

This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.