Friday, January 29, 2010
Freeport "Broken", Miners in Correction
It is 6:24 AM and that famous Raine's TGIF coffee never tasted so good. What a week this has been for metals and miners. Fortunately it looks like we're closing the month on an upbeat note with a better than expected fourth quarter rise in U.S. GDP (5.7%) and signs that the European Union is moving to help struggling Greece with its debt problems. This effort is no doubt to stem the sovereign debt crisis from cascading to Portugal and Spain which are also on shaky ground.
The latest news has stopped the fall in copper prices and given some of the miners a much needed lift for the day. The question is whether this will be enough to stem the latest sell-off in the commodity space. Yesterday we tried to gauge investor confidence in our favorite miners. The jury was split with half of the miners below their 200-day moving average, General Moly sitting right at this critical line and Freeport McMoRan and Thompson Creek above.
The fate of Freeport is important because it is often considered the bellwether of mining stocks by the investment community. Yesterday on CNBC, Dennis Gartman, the "Commodity King", declared Freeport "technically broken" and saw rocky roads ahead for metals and miners in the near term. A stock that is technically broken is expected to fall further based on its chart performance even if the company's fundamentals are positive. All our miner's (local and benchmark) are in a bearish correction (i.e., greater than 20% decline) from recent closing highs:
Barrick (ABX) $47.93 (12/2/09) $35.91 (1/28/10) -25.1%
Newmont (NEM) $55.83 (12/2/09) $43.99 (1/28/10) -21.2%
US Gold (UXG) $3.09 (12/2/09) $2.32 (1/28/10) -24.9%
Freeport McMoRan (FCX) $88.2 (1/8/10) $68.82 (1/28/10) -22.0%
Thompson Creek (TC) $15.2 (1/14/10) $11.51 (1/28/10) -24.3%
General Moly (GMO) $3.08 (1/19/10) $2.40 (1/28/10) -22.1%
By comparison, the S&P 500 is only down 5.7% from its closing high of 1150.23 on the 19th of this month. With great reluctance, the ole Colonel has turned the "Investor Confidence" indicator to YELLOW on the Eureka Outlook Dashboard to your right.
So where do we go from here? Presently the broader markets are in "consolidation". This is a polite way of saying things are lousy but not bad enough to jump in the lifeboats. If the S&P goes down 10% it will be said to be in "correction" but a bearish correction is still another 10% away (i.e. 20% below 1/19/10 level). I'm scratching my head but think a 10% drop might be in the cards followed by a rebound and gradual recovery in the commodity space. This would follow last year's model without the severity; a market low (March for 2009) followed by a climb from the bottom by the metals and miners. For the latter, much depends on the economic growth outlook for China in 2010. I continue to believe that worry about their tightening monetary policy is overdone. As long as interest rates are low and China/India continue to have a healthy appetite for raw materials, investment money should return to the metals and miners.
The ole Colonel remains bullish for 2010 although I did lighten up a bit on Freeport on today's bounce. I'm not letting any General Moly or Barrick out of the corral pardner.
Enough talk, let's walk the walk:
4-WD is ON - the VIX or "fear index" is too close to 25 for my comfort, rougher markets are expected (what's this?)
Yellow light is ON for waning investor confidence in the metal and mining sectors
Yellow light is ON for possible adverse regulation/legislation: Cortez Hills & mercury emissions
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
Oil is up $0.72 in early trading to $74.36 (March contract, most active); Gold is down $4.0 to $1080.8 (April contract, most active); Silver is down $0.037 to $16.175 (March contract); Copper is up $0.0090 to $3.1070 (March contract); Molybdenum falls to $15.00
The DOW is up 113.66 points to 10234.12; the S&P 500 is up 11.86 points to 1096.39. The miners are mixed:
Barrick (ABX) $35.79 down 0.33%
Newmont (NEM) $43.89 down 0.23%
US Gold UXG) $2.33 up 0.43%.
General Moly (Eureka Moly, LLC) (GMO) $2.46 up 2.50%
Thompson Creek (TC) $11.85 up 2.95%
Freeport McMoRan (FCX) $70.31 up 2.17% (a bellwether mining stock spanning gold, copper & molybdenum)
The Steels are mixed, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $39.46 up 1.99% - global steel producer
POSCO (PKX) $115.89 down 1.52% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 0.94% to $1,199,342.35 (what is this?).
Headline Photograph by Mariana Titus