Back on October 6, I suggested another way to view support and resistance points for Freeport McMoran (FCX) – a major copper producer – by looking at the price of the stock against the price of copper itself.
For example, here’s a chart plotting the relationship between FCX and the price of copper (using a continuous contract) going back about 18 months (May of 2009):As you can see, when copper has traded at around $3 per pound, the stock has traded from around 60 to 85. That’s a wide range, of course, since there is obviously a historical relationship between the stock and the metal.
The red line shows the linear regression line which best fits the data. I added the green lines to show potential support and resistance points.
The chart shows that the slope of the line is about 26, indicating that if the relationship holds, FCX could conceivably move up or down by that amount for every $1 move in the price of copper. (more)