If you follow these two rules, you will never have a losing trade. First? Buy low. Second? Sell high. Sounds easy, right? Well, here we are, hovering at nearly 5 year lows and after a long and bumpy ride, precious metal investors want to know, “Are we there yet?”
Zacks Equity Research initiated a Bear of the Day last Friday on Freeport McMoran (FCX) and said analysts expect a 22.7% drop in revenues. EPS is expected to plunge 55% and the consensus EPS estimate has been revised 17.24% lower over the last 30 days. Nobody expects anything but more doom and gloom for copper producers. When FCX reports earnings on January 24th, I believe the market reaction is ripe for a positive surprise.
If earnings disappoint, price action will suffer. But how much? For how long? We already are well below the 200 ma of 13.49 and as the old saying goes “better to fall out the basement window than the top floor.” Translation? This may be our window.
Long term, the mining sector as a whole could be a buy. Vince Sorace, CEO of Kutcho Copper told Kitco News that supply side fundamentals swing in coppers favor. “There isn’t a corporate or an analyst or a strategic that I’ve talked to in the last year that isn’t on the same page with respect to, they see, a continuation with respect to demand, and that could be driven from a number of different places,” he added.
Research firms are starting to back bullish outlooks for the mining sector. According to Jim Wyckofff, senior market analyst for Kitco News, commodities have reached a cyclical low and should see higher prices in 2019.
Geopolitical landscapes are fast and ever-changing. We could see demand for precious metals spike due to political turmoil. France is on its tenth week of protests by the “yellow vest” movement. Venezuela has descended into chaos. Brexit fears are reaching a zenith. America is experiencing the longest government shutdown in it’s nation’s history. Time to start placing your bets on gold.
The Venezuelan catalyst could happen sooner than later. Brazil’s newly elected President, Jair Bolsonaro, was recently reported by Reuters as saying “we will do everything we can to re-establish order and democracy” in a meeting with opposition leaders and urged Venezuelans to resist as “change was coming soon.”
In the U.K., Brexit is dominating headlines as the deadline to withdraw from the EU draws near. The situation resembles the classic catch-22. Serious risk of political instability lies in the failure to deliver the referendum. On the other hand, if Brexit goes as planned, Ireland’s Merrion Vaults, a safety deposit box operator, thinks Brexit fears could trigger an Irish gold rush.
The bearish case relies on conventional wisdom that China is slowing down, which means less housing starts as construction projects dwindle due to waning demand. The Wall Street Journal just reported that China’s recent GDP numbers were the lowest in 30 years. Sounds scary but this is where your inner-contrarian should be awakening. China will boom again. Do you want to speculate now at rock bottom prices or later after it’s been confirmed?
The blue line in the FCX chart below illustrates one year of historical stock prices. I drew an imaginary purple line charting the direction I expect the price to follow over the next few weeks. The red trend line at the top is resistance and the purple trend line at the bottom shows support. In between the two is the price level I expect consolidation to take place.
Fundamental investing rewards those who take contrarian views during downturns and according to the most recent Thompson Reuters research report, FCX fundamentals are a rock solid “10”. They also said that many improvements have been made to their balance sheet during the sector downturn. The equity research firm Market Edge has initiated a Long rating, stating that “the technical conditions of the stock support higher prices” and mentioned that over the last 50 days, FCX has outperformed the S&P 500.
Yahoo! Finance (2019)
In summary, I think we may be starting to turn the corner. The five year chart above shows what could be a long term price pivot. Demand for precious metals is picking up and Kitco News is reporting that analysts expect a 1400 target for gold in the near future. If they’re right, FCX will be looking like a sweet deal at these prices.