Using the QE2 Reference Price To Buy Freeport-McMoRan

(This is an excerpt from an article I originally published on Seeking Alpha on September 10, 2012. Click here to read the entire piece.)

{snip}…I want to demonstrate how well last year’s playbook has worked for Freeport-McMoRan Copper & Gold Inc. (FCX) (so far!).

One of the rules from the playbook states:

“QE2 (the second round of quantitative easing) will be used as a benchmark for measuring any correction in commodities. An erasure of most or all gains from late August, 2010 will be considered a major buying signal. I will be flagging individual plays when (if) this target gets hit.”

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The QE2 reference price has served as a strong trading guide for FCX
The QE2 reference price has served as a strong trading guide for FCX

The first thing to note is that, as expected last year, commodity-related stocks like FCX eventually gave up all their QE2-inspired gains. What did NOT happen as expected was a crash in China that caused commodity demand to implode. So buying at the QE2 reference price has become a relatively consistent winner across a range of commodity-related stocks. In fact, I was pleasantly surprised how this one rule was sufficient for executing trades and for keeping calm during sell-offs.

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FCX bounces off the QE2 price and confirms bullish move with surge above its 200-day moving average
FCX bounces off the QE2 price and confirms bullish move with surge above its 200-day moving average

Source for charts: FreeStockCharts.com

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Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on September 10, 2012. Click here to read the entire piece.)

Full disclosure: long FCX

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