My last journal entry, which outlined my plan to profit off of my bullish bias on AMZN, worked to perfection. The options I played moved to a high of $17 from my entry at $4.95 for gains of over 200%. This time I am looking at Freeport-Mcmoran (FCX) as the chart looks appealing to those wishing to buy call options in my opinion.
4/3/12
FCX ($39.11) – Bullish Bias
support:
- $39-$39.04 (this range marks the lowest point FCX traded the last 4 hours of the day on 4/2, thus it is my “most recent low”)
- $38.62-$38.70 (this range is where FCX bounced from in the morning on 4/2 after it had made a high around $39 at 10:10 am est)
- $38.36-38.45 (this range is where FCX bounced from in the morning on 4/2 after it had made a high around $38.80 at 9:45 am est)
- $38.10-$38.15 (this range marks the low of the day on 4/2 to the high of the day on 3/30)
- $37.74 (this level marks FCX’s afternoon low on 3/30)
resistance:
- $39.16-$39.25 (this range marked FCX’s highs for the last 15 minutes of the day on 4/20 as well as lows earlier after it had extended past $39)
- $39.43-$39.65 (this range marks FCX’s highs from 3/30 and 3/27)
- $39.94-$40.19 (this range marks FCX’s highs from 3/11, 3/19, & 3/21 as well as the low from 3/5)
- $40.45 (this level marks FCX’s closing price on 3/5 when it was breaking down)
- $41.07-$41.26 (this range consists of FCX’s low from 3/2 and its open and high from 3/5)
- $42 (a key support level from mid February before FCX broke down, therefore I expect previous support to now be resistance)
observation: FCX has been very volatile in 2012. Since the year began it has made 2 pretty big separate moves in either direction: a 33% gain from 1/3 – 1/26 and a 25% loss from 1/26 – 3/29. FCX has spent the last few months downtrending from its 2012 high of $48.96 but it found support at a key level on 3/29 – $36.76. $36.76 is a key price level because it is right around where FCX closed 2011 at. FCX could have easily succumbed to downward momentum and gone red for the year but instead buyers stepped in at the psychologically important year-to-date break even level. Not only did buyers step in, they stepped in with a vengeance, pushing FCX higher by 6% in 3 days, it’s best % advance since January.
thesis: Due to FCX bouncing powerfully from a key support level I believe it has reversed its recent downtrend. The reason I believe this to be the case has a great deal to do with the size of the bounce – 6%. The 6% bounce has left little time for those on the sidelines to decide if they want in on FCX. Because of this, I expect FCX to have a lot of support on future dips, and down moves to be limited in scope. Why? Because I consider myself a good trader, and I missed the bottom so therefore I believe other good traders missed the bottom as well. The psychological impact of that is that us good traders aren’t going to get too picky when it comes to taking a long position in FCX, heck a 0.5-1% pullback would be good enough for me — I believe a self-fulfilling up move is underway given the current technical back drop. In addition, with the market up 12% and FCX only up 6% on the year people buying now won’t feel as though they are “chasing.”
required volume criteria:
- 3 minute volume @ open > 400,000-450,000 shares is bullish if price is increasing. Dips that follow on < 270,000-330,000 shares are bullish if they hold above supports 1 or 2 or 4/2 close — bearish scenario is volume > 360,000 shares on breakdowns below supports 1, 2, or 3
- 15 minute volume @ open > 1.2 million-1.3 million is bullish if price is increasing. Dips that follow on < 900,000-1 million shares are bullish if they hold above supports 1 or 2 or 4/2 close — bearish scenario is volume > 1 million shares on breakdowns below supports 1, 2, or 3
- 60 minute volume needs up candle > 2.6 million-3 million shares as price is breaking resistance 1 to support bullish bias. Dips that follow on < 2.5 million shares are bullish if they hold above supports 1 or 2 or 4/2 close — bearish scenario is 60 minute volume candle > 2.9 million shares on breakdowns below supports 1, 2, or 3
plan: I am looking to buy the April 21st expiration $36 strike call (closed 4/2 at $3.26). The reason I am targeting this call vs others is because it has very little premium (0.0038%) and still has good liquidity and a good spread. The reason I am going with the monthly expiration as opposed to weekly is because after the 6% move FCX just made, I feel as though it may need to consolidate in the immediate term. By paying very little in premium, and giving myself more time until expiration I will not be held at the mercy of time decay. Ideally, I will enter this trade on a pullback that holds support 1, 2, or 3 on matching volume criteria. However, I am willing to enter the trade on a breakout above resistance 1 if the required volume criteria is fulfilled.
target: If FCX allows me to enter a trade based on my plan I will target a move to resistance 6 as long as the volume criteria I am looking for is there.
adjustment: If FCX breaks resistance 6 then a test of the $43-$45 range seems possible so I will stay in the trade with at least 35% of my position to gain exposure to more potential upside. If FCX fails to hold support 1, 2, or 3 today then I will not enter a trade today. Although my bullish bias would still be in a tact, a breakdown below those supports would signal to me that FCX likely needs to consolidate or test support 4 or 5 before it can resume its recent uptrend.
stop-loss: This depends on my entry. If I enter on a breakout above resistance 1, then my stop-loss will be no lower than support 3 (and possibly support 2), as a move below there would negate the breakout in my opinion. If I enter on a pullback near supports 1, 2, or 3, then my stop-loss will be support 5.
-Stockhaven
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Related posts:
- Stockhaven’s Trade Journal: Bullish bias on AMZN
- SH @ the close 10/10/2011: Market surges higher on bullish technicals
- SH update 3/1/12: Revisiting the gold & silver miner trade
- SH @ the bell 10/11/2011: Rally can be nitpicked, but overall bullish trend in play
- SH @ the bell 2/14/12: Is everyone too bullish?
