Was There A Selling Climax In The Mining Stocks Today?

While most major U.S. stock market averages posted solid gains today, the mining sector saw devastating selling which pushed many equities down 10% or more at their lowest prices intra-day.

Among the more interesting stocks was Freeport McMoran (FCX), a diversified mining stock with exploration activity in copper, gold, natural gas, and crude oil, among other natural resources. This company is heavily leveraged with debt to equity now at 1.89 to 1. With commodity prices sharply lower over the last two years (at least), Freeport McMoran has been a disastrous holding for investors. The company's stock peaked in May 2008 at 127.25. Amazingly, it traded as low as 3.65 today. Yes, that's a 97% loss in equity over the last 8 years. Heck, FCX traded at 39.32 less than 18 months ago! FCX has been involved in three of the worst natural resource areas you can possibly imagine over the last 18 months: Copper, Gold, and Energy!

Wall Street analysts have been tripping all over themselves in recent days to downgrade this hated stock. Jefferies was the latest today, downgrading FCX from Buy to Hold. While it's probably an understatement, I think these downgrades maybe just a little late! In fact, I think a major selling climax was witnessed today in Freeport McMoran and this stock is now a strong buy. At one point today, FCX was down over 15%. However, it rebounded late in the day to close 12.6% above it's intra-day low and only down 4.6% on the day. In the interest of full disclosure, I bought a fairly significant position in FCX today.

A week ago, I had no stocks in any of my managed accounts. I was 90% in cash and 10% in mid-term blue chip bonds. However, over the last three days I have reallocated 2/3's of my cash to mining shares with exploration interests in energy, copper, gold, and silver. Most of this cash was put to work today.

With commodity prices in an apparent free fall on a global basis, what's going to change? Where is the light at the end of the tunnel for shareholders in mining shares? The answer may be as simple as one dovish speech from a single Federal Reserve official. I think it's pretty safe to say that the Fed's plan to hike interest rates four times this year is off the table now. In fact, I wouldn't be at all surprised if the Federal Reserve doesn't hike rates even one time in 2016!