Traders and investors analyze technical aspects while making market entry and exit decisions, and moving averages and the RSI (relative strength index) are among the most widely used technical parameters. Generally, an RSI below 30 signifies oversold positions, while an RSI above 70 is associated with overbought positions.
Based on closing prices on April 18, 2016, Freeport-McMoRan (FCX) is trading 32% above its 100-day moving average. By comparison, Teck Resources (TCK) is trading 45% above its 100-day moving average while BHP Billiton (BHP) and Southern Copper (SCCO) are trading at 18% and 9.2% above their respective 100-day moving averages.
Freeport currently has a 14-day RSI of 63, which traders see as getting close to overbought levels. But we should note that Freeport is currently trading 25% above its consensus one-year price target of $11.02. By comparison, Teck Resources is trading 48% above its consensus one-year price target.
Consensus price targets
We should also note that most commodity companies have already surpassed their one-year price targets. This is partially because most analysts were bearish on the sector early in 2016, when we saw several downgrades after the news of mining companies’ 4Q15 earnings.
But while commodity prices (GCC) have rebounded sharply, we haven’t seen many upgrades coming. This could mean that not many analysts are convinced of the sustainability of the current upward momentum in commodity prices. However, better 1Q16 earnings could see analysts raising their target prices for commodity companies including Freeport.
Interestingly, Freeport has been the short seller’s delight for the last couple of years (with the notable exception of 1Q16). Let’s explore now how shorts are positioning themselves ahead of Freeport’s 1Q16 earnings release.