FedEx Stock Testing 2018 Low Ahead of Earnings

FedEx Corporation (FDX) reports fiscal fourth quarter earnings after Tuesday’s closing bell, with Wall Street analysts expecting earnings per share (EPS) of $4.83 on revenue of $17.85 billion. Shares of the shipping giant fell more than 6% after it missed fiscal third quarter estimates and lowered full-year guidance in March, warning that “adverse macroeconomic conditions,” better known as trade tensions, were affecting international shipping volume.

The stock fell to a 29-month low in December and bounced at that level in June, raising hopes for a double bottom reversal, but the company faces twin headwinds that could deny relief to long-suffering shareholders. First, Amazon.com, Inc. (AMZN) is rolling out an in-house shipping network this year, reducing a key customer base. Second, China is investigating FedEx’s misdirection of a Huawei shipment, offering a perfect retaliatory target if trade wars escalate. The company on Monday announced it has sued the U.S. government for placing “an unreasonable burden” on it to police the contents of millions of packages. “FedEx is a transportation company, not a law enforcement agency,” it said in a statement.

A modest uptrend finally cleared 10-year resistance in the upper teens in 1996, generating a momentum wave that continued into the 1999 high at $61.88. It turned lower when the internet bubble burst one year later, dropping into the low $30s, and tested that level multiple times through the Sept. 11 attacks in 2001. That marked a historic buying opportunity, ahead of a rapid recovery that reached the prior high in 2002.

A 2003 cup and handle breakout attracted intense buying interest, lifting the stock in multiple rally waves through the mid-decade bull market. The uptick paused at $100 in 2005 and resumed in 2006, stalling above $120 a few months later. Multiple breakout attempts failed into the second half of 2007, giving way to a breakdown and downtrend that accelerated during the 2008 economic collapse.

The stock posted a seven-year low in 2009 and turned sharply higher, completing a round trip into the 2007 high in 2013. It broke out immediately, entering a powerful trend advance that ended above $180 in 2014. That marked the highest high, ahead of a 2016 breakout that went ballistic at the end of 2017. The rally posted an all-time high at $274.66 less than two months later, giving way to a brutal decline that found support near $155 in December.

The monthly stochastic oscillator entered a sell cycle in February 2018 and still hasn’t reached the oversold level, exposing more downside. The stock hasn’t traded in the oversold zone since 2009, but multiple embedded waves raise the odds that this complex decline still requires a selling climax. Even so, the December 2018 bounce started at a harmonic intersection between the nine-year uptrend and three-year downtrend, indicating that selling pressure may be coming to an end.

The on-balance volume (OBV) accumulation-distribution indicator hit an all-time high in June 2018, nearly five months after the price peak, and entered an active distribution phase that ended in December. It has now drifted into a test of the 2018 low along with price, exhibiting convergence that should assist directional analysis after this week’s report. Specifically, an OBV breakdown will predict that price will follow, setting the stage for a painful retreat that could extend into the 2016 low at $120.

On the flip side, it will take months to confirm a new uptrend because that outcome requires a buying spike that reaches the April high near $200. A breakout above the 50-day exponential moving average (EMA) at $70 will indicate that price action is on the right track, especially if volume gains ground at a faster pace than price. Regardless of the short-term reaction, FedEx is unlikely to trade back to the 2018 high in this economic cycle. 

FedEx stock could gain ground in reaction to this week’s earnings report, but it will take tremendous buying power to overcome the 17-month downtrend. 

Disclosure: The author held no positions in the aforementioned securities at the time of publication.