Could the Freeport-McMoRan Stock Selloff Be Short-Lived?

An unwinding of pessimism surrounding FCX could provide tailwinds

Digital Content Manager
Apr 26, 2022 at 1:23 PM
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Freeport-McMoRan Inc (NYSE:FCX) is one of the casualties of the selloff the mining sector has been suffering from, as lockdowns in China spark demand fears. The security was last seen down 3% to trade at $40.38, after shedding 20% in the last week. Compared to some of the other equities we've covered recently, however, this pullback is relatively tame, with FCX sporting a muted 3% year-to-date deficit and still clinging to a 3.6% year-over-year lead. What's more, the stock's pullback has put it back within striking distance of a trendline that's had bullish implications in the past.

According to data put out by Schaeffer's Senior Quantitative Analyst Rocky White, FreePort-McMoRan stock just came within one standard deviation of its 260-day moving average. Per White's data, there have been four other instances in the past three years where a similar pullback occurred. One month after three of these signals, FCX notched positive returns, averaging a 15.9% pop during this time period. A similar move would put the security just below the $47 level. 

fcx chart april 26

An unwinding of pessimism in the options pits could put additional wind at the equity's back. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.35 sits higher than all other readings from the past year. In other words, short-term options traders haven't been more put biased during this time period. 

And while long calls are still outnumbering puts at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 50-day put/call volume ratio that sits in the 89th percentile of its 12-month range, suggesting a much healthier-than-usual appetite for bearish bets of late. 

A shift in analyst sentiment could also be beneficial. Of the 11 in coverage, seven covering brokerage firms call the mining stock a "hold" or worse. 

 

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