Who Knows What Evil...? Freeport Knows!

*** BREAKING NEWS **** The DOW Jones 30 Industrial Average crested the psychologically important 12,000 level at 7:13 AM PT

"Who knows what evil lurks in the hearts of men? The Shadow knows!" The Shadow radio program (1930s)


Wōdnesdæg
Morning Miners!

It is 5:51 AM. Have a cup of hump day bliss and help me throw a spare Handyman in Ruby's pickup. She's driving Old Miner Woden out to his diggings on Lone Mountain for a winter look-see and I don't want them getting stuck in the mud. On our first coffee, Woden was reminiscing about the 1930s radio program The Shadow and it got me thinking about the metal & miners...

"Who knows what evil lurks in the hearts of large investors? Freeport knows!"


Yesterday we tried to gauge how bad the present correction in the metals & mining sector may become. I've been bullish predicting momentum will return in the spring. That's all fine but it's nice to back up happy thoughts with some data and understand what could change the ole Colonel's mind. Copper giant Freeport-McMoRan (FCX) is a terrific bellwether for market direction since they mine not only the red metal but gold and molybdenum too. Freeport stock is the darling of many institutional investors and hedge funds and when things turn bad she is often the first pretty gal left behind on the dance floor.

Last January provides a good example. Dennis Gartman, the "Commodity King" and author of the Gartman Letter, declared Freeport "technically broken" on 1/28/2010. The stock had fallen more than 20% from its high set earlier that month ($88.20 intraday high on 1/8/2010) and perhaps more ominously, had broken its 150-day moving average ($71.06).

FCX managed to bounce back to the early January level in April ($88.30 closing high 4/6/2010) then fell all the way down to $58.86 on June 7th, last year's worst day for the metals & miners. On that day the Eureka Miner's Index(EMI) recorded a dismal 50.7. By comparison yesterday' EMI was 492.5, the January 4th high was a lofty 816.8. The EMI gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County.

OK, that's some recent history, so what? We noted yesterday that Freeport-McMoRan has fallen through its 50-day moving average (MVA) but remains above both its 100-day and the fateful 150-day averages. The broader markets are now open and thankfully the metals & miners are enjoying a relief rally today. FCX is up 0.7% to $107.18 in early trading. These are the latest averages:

50-day MVA (01/26/2011) $111.27
100-day MVA (01/26/2011) $101.48
150-day MVA (01/26/2011) $90.12

Here is a 1-year chart of FCX plotted with its 150-day moving average (green line):


I wouldn't expect Gartman to start shooting flares until we see $90 country for FCX. If we can stay in the $100s, I'm not changing my outlook - break that 150-day and the Colonel heads for the exits with Dennis.

Another thing to note is the reduced marketplace fear compared to last year at this time. We use both the S&P 500 volatility index (.VIX) and gold/silver ratio (Au:Ag ratio) to measure fear when the report computes the EMI; bigger numbers typically indicate greater fear.

Last year at the Gartman warning on 1/28/2010:

.VIX = 23.73
Au:Ag = 66.03

On the worst day for metals & miners (6/7/2010)

.VIX = 36.57
Au:Ag = 68.33

Today (1/26/2011)

.VIX = 17.37
Au:Ag = 49.67

There you go - don't worry (yet), be happy! You'll be the first to know if I change my mind about a good spring for the metals & miners.

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 492.46, up a tad from yesterday's 460.37. We are below the 1-month moving average of 653.62 and the the EMI is now trending down from the high set on January 4th.

The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI greater than 100 signals better times for the metals & miners relevant to Eureka County.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Eureka Outlook Dashboard

4-WD is ON - The metals & miners have hit a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) in is below its 50-day moving average but still well above its 200-day average of $83.07 (our new warning level, 01/05 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

The YELLOW light is turned on our Fuel Gauge with oil above $80

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.23 in early trading at $86.42 (March contract, most active); Gold is down $1.6 to $1330.7 (February contract, most active); Silver is down $0.015 to $26.790 (March contract, most active); Copper is up $0.0105 to $4.2365 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.50; LME moly 3-month seller's contract is $17.10, LME cash seller is $16.92

Stock Market Morning Update

The DOW is down 1.48 points to 11,975.71; the S&P 500 is up 1.74 at 1292.92. Miners are up:

Barrick (ABX) $46.50 up 0.80%
Newmont (NEM) $56.31 up 0.77%
US Gold (UXG) $6.18 up 1.98%
General Moly (Eureka Moly, LLC) (GMO) $5.43 up 0.56%
Thompson Creek (TC) $13.63 up 1.64%
Freeport-McMoRan (FCX) $107.18 up 0.70% (a bellwether mining stock spanning copper, gold & molybdenum)

The Steels are mixed (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $37.28 down 1.58% - global steel producer
POSCO (PKX) $106.72 up 1.27% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.66% at $1,766,265.87(what's this?).

Cheers,

Colonel Possum

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Headline photograph by Mariana Titus