The Slide in Stocks, Juniors’ Weakness, and… Profits
Whoa! What a rapid increase in the profits from our short position in the FCX!
The days when the Freeport-McMoRan stock price was trading above $40 are definitely over (at least for some – likely long – time). They plunged on big volume, and the big volume says that this move was not accidental.
In consequence, it seems not only that the short position that we entered in early April is already profitable but that those profits are likely to increase (likely substantially) in the following days / weeks.
The current situation in this company’s share price is similar to what we saw in the middle of the previous year. I marked the similar tops in the RSI with red ellipses. And just like the decline that we saw back in 2022 was much bigger than the one that we had seen earlier that year, the decline that is likely follow from here is likely to be bigger than the decline that we had already seen earlier this year.
It seems like a good idea to profit on it, wouldn’t you agree?
After all, FCX’s decline has legs. It’s based on the increase in the interest rates all around the world, likely a decline in commodity prices that is expected to be accompanied by a major decline in the stock market prices – all based on declining economic activity, which is likely to happen given… Well, rising real interest rates.
The above also means that inflation might (!) at some point, start to move lower, and whether that happens or not, rising real rates are bearish for gold, either way. And since FCX is both: copper and gold producer, it’s likely to decline based on both: copper’s decline and gold’s decline.
In fact, it’s already sliding!
Moreover, FCX seems to have been the canary in the coal mine, as it’s been declining for several days now. Other stocks just joined in.
Yesterday’s 1.5%+ decline in the S&P 500 Index is no surprise at all, at least to those who have been following my analyses. The current situation is a mirror image of what we saw in late 2022, and it seems that it’s the right shoulder of a bearish head and shoulders pattern that’s currently in the making.
So far, this formation is just potential, but when stocks break below their rising neck level (marked with a red dashed line), the downside target will be at about 3,500 – the 2022 lows.
This suggests lower values for stocks and FCX, and the precious metals sector (especially junior mining stocks), which recently moved higher and lower with stocks.
Yesterday’s performance of junior miners confirms the bearish outlook.
Juniors declined yesterday even though gold moved a few dollars higher. This relative weakness is something that we oftentimes see before declines.
This, plus the obvious fact that the GDXJ just invalidated their breakout above the early 2023 highs, suggests that much lower prices of junior mining stocks are to be expected in the following weeks.
Yes, gold closed the day above $2,000 once again yesterday, but only a few dollars above it, and this was after it already invalidated a breakout above that level. Consequently, I doubt that the current small attempt will be successful. In fact, that seems very unlikely, given the weakness that we just saw in the junior mining stocks.
All in all, the outlook for the precious metals market is very bearish, and the profitable action in the FCX indicates what’s likely ahead also for the PMs.
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Przemyslaw Radomski, CFA