First Quantum Minerals testing support

Apr 19th, 2010 – Comment

If you have an appetite for risk you could jump on now and see if you catch a lift. On the other hand if you are risk averse you would want to see FM move through resistance at 82.50 and see if you can ride it back to $92.50.


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FirstQuantumMinerals

 

 

Good Morning Lou,

I have a question about First Quantum (FM.T)and copper price. What is the impact of Congo’s political issue on the stock price? If China’s housing market loses strength will copper price come down? Do you think it can merge with a bigger company? Is there a better entry price?

Thanks
Smita

 

Hi Smita,

You have posed a number of good questions touching  the trading value of copper and by the nature of their business First Quantum Minerals Ltd. ( FM TSX).  As a general rule the political stability of the  countries where a company operates will influence the  company’s share price. Similarly the global demand for a commodity will be influenced by a number of factors including a potential slowdown in the housing sector in China and a potential merger.

Having said all that its good that we have one good indicator that incorporates all those factors and thats the price of the stock!

In technical analysis we say that in the price there is much knowledge. What that means is that the market has already priced in all the information and speculation floating in the data sphere and come up with a value for the asset. If you accept the premise then what we need to do is evaluate how the price of the asset is behaving.

fm

The three year chart tells us that the stock made a huge advance from the December 2008 lows but that advance has taken a breather. FM hit a high at $100 in January of 2010 and then pulled back, falling below the 50 day moving average and then catching a bounce off the 200 day moving average.

What we can deduce from the price action is that the uptrend is broken and investors have been taking some of their money off the table. The bounce off the 200 day moving average ran to a lower high of $92.50 in late March and has pulled back testing support on the 200 day moving average once again.

 

fm2

The six month chart provides a closer look of the recent price action in the shares of FM. The MACD proved a good signal generator for the advances and declines in FM. Currently the MACD is not suggesting that the stock is about to catch another bounce. However the last candlestick on this chart is a doji called  a hammer which signals a trend reversal to the upside.

If you have an appetite for risk you could jump on now and see if you catch a lift. On the other hand if you are risk averse you would want to see FM move through resistance at 82.50 and see if you can ride it back to $92.50.

Happy Capitalism!

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