by Serge Berger | December 27, 2013 8:45 am
On Wednesday (Christmas Day), shipping and logistics company United Parcel Service (UPS) said that the sheer volume of holiday packages was overwhelming and that some customers would not receive their packages until after Christmas.
Several issues were to blame, with weather being a contributing factor, but customers show little sympathy when it comes to package delivery — particularly Christmas presents. As a result, UPS heard major complaints from customers, which also caused some waves in the social media space.
UPS had originally projected 132 million deliveries last week, which was well-exceeded due to the last minute holiday sales rush. The continued rise of online sales from retailers such as Amazon (AMZN) caused issues for UPS, and also for rival FedEx (FDX).
UPS had even added 23 chartered aircraft to its fleet of several hundred to beat the holiday rush … but even that ended up not being enough.
UPS stock still pushed higher on Thursday, though, as investors considered the upside of the story: increased consumer demand/spending. The industrial sector, to which UPS belongs, was actually one of the leading parts of the S&P 500 on Thursday — probably in part due to the flood of holiday sales and packages seen by UPS and FDX.
When it comes to the UPS stock chart, though, its all about time frames right now. Sure, trading and investing in general are all about understanding time frams and exercising sound risk management … but for those involved in UPS stock at the moment, it is particularly important.
On itsweekly chart looking back to 2005, UPS stock has developed a major technical formation called an inverse head and shoulders pattern. From 2005 to 2007, UPS developed the left shoulder of this pattern. The head was then developed thanks to sell-off leading into the 2009 bottom, while the right shoulder is the recovery in recent years.
All of this created a major technical resistance line (neck line) roughly around the $80 area, marked by the black line on the chart. In early 2013, though, UPS stock pushed through this and has never looked back since.
The way one measures the upside target of an inverse head and shoulders pattern is by measuring the move from the lows of the head up to the neck line and adding this difference to the top of the neck line. In the case of UPS stock, this results in an upside target around the $125 area, through the lens of a multi-year chart. In other words, UPS still looks bullish through this time-frame.
On the daily charts, though, UPS stock is getting increasingly overbought. This is signified both by its momentum oscillators as well as its ultra-steep slope from recent months. However, the stock is still trading in a technically tight pattern for now. From a trading point of view, that means taking partial profits is a better trade than trying to short the stock.
Near-term, UPS stock has upside toward $107 … but with waning upside, momentum traders need to take any bearish reversals in coming weeks very seriously.
So there you have it: UPS stock is constructively positioned in the long-term, but is seeing overbought levels in the near-term. Trade accordingly.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities
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