FCX (Short)...

I see a potential head and shoulders top in FCX. The head is at $60, the shoulders are at $52.50, and the neckline is at $45, right where it's presently at. The measured move there is $15 (head - neckline), so this one could go back to $30 (neckline - measured move). Remember, it is only a potential top until the neckline is broken. Interestingly enough, the target at $30 corresponds with the neckline of the previous head and shoulders bottom that was formed in FCX during 08Q4 and 09Q1. FCX formed a head and shoulders bottom with a neckline at $30, a head at $15, and shoulders at $23. It overshot a bit to the upside, but if you bought it and held for the measured move, you still made 50%. Also, note that the amount of time it takes the base to form corresponds well with how long the ensuing rally/decline to last. The bottom took roughly four months to form, and it subsequently rallied for about four months. This potential top took about two months to form, and I would expect the decline to take about two months if the neckline is broken. FCX reports earnings on 21 July before the open. An earnings shortfall could be the catalyst to drive the stock down to the $30 target.

I am looking to short FCX in stages. Ideally, we get a low-volume rally that takes us up towards that right shoulder, at which point I would initiate a short position with a stop just above the right shoulder. I would leave room to add to the short on the expected break of the neckline. Alternatively, if we do not get that rally and the neckline breaks first, I would look to short there with a stop just above the neckline.

Position: none