Dexter’s Walking Shoes (Freeport McMoRan)

We’re going to lead off today with an event that we’ve been anticipating for well over a month. It’s the breakout of shares of Freeport McMoRan (NYSE:FCX) from a torturously long sideways slide that we’ve discussed several times over the last few weeks.

 

The chart pattern from which the breakout occurred is called a ‘rectangle’, for obvious reasons, and it looks like this –

 

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Freeport McMoRan Technical Chart 2016

 

This is exciting for us, because a two months long coil in the stock has created what we believe is now an explosive situation that will almost assuredly resolve itself in massive upside profits.

 

A look at the rest of technicals offers additional reassurance.

 

First, we now have a solid base on which to rely; that is, the stock should hold strongly on any retreat to the $12 level, give or take, the upper edge of the rectangle.

 

Second, price is now trending above three of her four most important moving averages, and no resistance appears until the long term moving average (in yellow) at the $14 level, another 8% above the current price. Beyond that, we’ve got nothing but blue skies.

 

Third, RSI and MACD are both above their respective ‘waterlines’ but not yet overbought, also indicating we’ve got room to run.

 

So we buy it now, right!? Freeport McMoRan

 

We’ll have more to say on trading Freeport McMoRan in just a moment, but first some important questions.

 

Like this…

 

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Why, at a time when gold has been jumping like a rodeo steer and copper has turned a corner on two wheels, has a company whose full name is Freeport McMoRan Copper and Gold not gone steroidal, fratricidal and trapezoidal all at once? Is there something defective about the company? Are they just late bloomers? Do short sellers know something that the rest of us ham and eggers don’t? In short, should we avoid the trade and look for a better representative in the metals sector?

 

Hmm…

 

The answer may not be so complex, after all, and it may or may not be worthy of a great deal more investigation. A quick look at the charts of both copper and gold reveals the following –

 

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Gold and Copper Technical Chart july 2016

 

Notice first the black square, which represents the time frame in which FCX was stuck in its rectangular range. During that time, there were weeks at a stretch when gold fell (in red) and copper rallied (in green). It occurred at least three times in that period, and several more times for lesser durations. And in the end, it was enough to do a big cancel job on the stock’s progress.

 

Until this week.

 

Perhaps it was copper’s performance that sealed the deal, gaining better than five percent in the last five sessions, even while gold was retreating. Or maybe folks just woke up to the profit potential of the stock after getting bored with its do-nothing performance since the end of April. Either way, we’re now going to move on Freeport McMoRan. But first, we’ve got three trades that require your attention. So fasten your seat belts and keep your eyes peeled – cuz we ain’t got no insurance!

 

A Trio of Whoppers

 

We’re going to close down three recent initiatives, all of which scored top-hat returns.

 

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The first was from our May 26th issue, called Living on Reds, Vitamin C and Cocaine, wherein we gratefully urged the purchase and sale of options on Amerco (NYSE:UHAL) stock. The trade recommended you buy the UHAL October 379 CALL for $24.00 and sell the UHAL 379 PUT for $25.20. Total credit on the venture was $1.20.

 

And today, that same CALL is still worth $24.00, while the PUT goes for just $15.50. Sell the former and buy back the latter and you net out $9.70, including the initial credit – ON ABSOLUTELY NOTHING DOWN. That’s 6367% adjusted for basic commissions.

 

And that’s lovely, dear.

 

Numero Deux

 

Next up was the venture we delivered on June 2nd, involving the selfsame Freeport shares discussed above. The letter was called Robbing with Copper, and in it we suggested you sell shares of DBC for $14.78 and buy FCX for $10.40, in equal numbers, for a net credit of $438 per board lot paired.

 

And how’d it work out?

 

As we speak, DBC trades for $14.91 and FCX for $12.96. Buy back the former and sell the latter and you come away with $243 per board lot paired.

 

That’s a generous 124% take in six weeks.

 

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You got it, Dexter.

 

Our last trade was opened just last week in Guilty. Not Guilty. There, we told you to consider buying the QQQ September 109 CALL for $2.74 and selling the QQQ September 109 PUT for $3.53. Total credit on the trade was $0.79.

 

As of this writing, the CALL is trading for $4.64 and the PUT for $1.77. Sell the former and buy back the latter, and you step out like Dexter on the boardwalk for a total gain of $4.66, again, on nothing expended. Subtract minimum commissions and that’s a 3007% gain in a lousy humphin’ week.

 

We are Freaking Geniuppopotami!

 

Get your Webster’s, Dex.

 

Let’s wrap it up with a fresh trade using Freeport McMoRan.

 

Remember, FCX has now based, consolidated, and been accumulated between $10 and $12, and in our view, there’s no going back. For that reason we feel comfortable selling near term puts on the shares, and we’ll detail which below.

 

In addition, there’s little in the way of Freeport McMoRan reaching its long term moving average in the $14 vicinity in reasonably short order. So we’re going to purchase slightly longer duration CALLs at that strike.

 

And finally, we want to execute the whole trade for a credit, as we like to do with all our trades.

 

All told, therefore, it works out as follows:

 

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Many happy returns,

Matt McAbby

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