Almost nine months ago, on March 31st, the share of leading copper miner Freeport McMoran was hovering around $13.30. The company’s debt load was troubling, an extended strike at their Grasberg mine was disrupting the working process and on top of that, the Indonesian government said the country wants to renegotiate the terms of its contract with the miner, bringing even more uncertainty into the picture.
Despite all the negatives, the price chart of FCX told a different story. The Elliott Wave Principle suggested that the market “seems to be anticipating a happy ending for the miner.” We did not know how or when, but the chart below gave us hope that something good was eventually going to come out of that complicated situation.
Since the news around Freeport McMoran was going from bad to worse at the time, we chose to rely on the price patterns instead. In that case, there was a five-wave impulse, followed by what we thought was an expanding flat correction. According to the theory, once the correction was over, the trend was supposed to resume in the direction of the five-wave rally. The daily price chart of Freeport McMoran stock inspires a different, but similar count now. Here it is:
Nine months ago, the naysayers were a roaring majority. If we were to listen to them, we would have missed an opportunity everyone is talking about today. Freeport’s debt load is quite manageable now, the strike is over and rumor has it the new deal between the company and the Indonesian government is going to be announced very soon. In addition, since Freeport is on track to earn $2.7 billion in free cash flow this year, shareholders are already expecting the miner to reinstate its dividend.
Trouble is that by the time the good news started to arrive, the stock was a lot more expensive. Yesterday, the market closed at $18.18 per share for a 36.7% return since the end of March. A good example of the fact that news-following is a loser’s game in the market.
Now, it looks like higher prices should still be anticipated. The chart above allows us to recognize a leading diagonal in wave (1) up to $17.06, followed by a corrective decline in wave (2) down to $11.05. If this count is correct, wave (3) to the north is currently under construction. It is usually the largest and strongest phase of the uptrend, which means the bulls still have plenty of room to run.
