FedEx Corporation (NYSE:FDX) shares popped higher Wednesday as the oversold transportation stocks continued their multiday bounce, which I alluded to Monday. While bigger-picture (across several months), transports still are giving us concerning signals as it relates to Dow theory, Wednesday’s rally in FDX stock resulted in a bullish technical move.
For traders and active investors, this points to a continuation on the upside that you can trade.
From a risk management perspective, it’s important to note that FedEx is scheduled to report earnings on June 17. That means the trade I see setting up in FDX stock would best be exited before then — that way you don’t expose yourself to even more uncertainty in the form of a post-earnings move.
We’ll take a look at the trade in FDX in a moment, but first, investors should understand what’s going on with transportation stocks as a whole.
Transport Charts
Starting off with a relative chart, below I divided the transportation stocks — as measured by the iShares Transportation Average ETF (NYSEARCA:IYT) — by the S&P 500 to get the ratio chart that shows the year-to-date relative weakness in transports.
What we see is that as a result of the weakness over the past six months, the ratio has arrived as a wide support band (blue box) with lots of price history.
In the near term, expect some more relative strength in transports versus the broader stock market (that is, in addition to what’s already played out so far this week).
I then look at FDX stock in relation to the transportation stocks, which are represented by the iShares Dow Jones Transport. Avg. (ETF) (NYSEARCA:IYT). Here we see that FDX has shown relative strength versus its group since mid March and from a trend following perspective this looks set to continue in the near-term.
FDX Stock Charts
On the multiyear weekly chart of FDX stock, we see that despite the recent relative strength it still finds itself largely confined to the bigger-picture consolidation phase that it has been in since last December. The six-month consolidation period, however, also helped to work off some overbought readings after FedEx’s steep rally in 2014. Through this lens, that’s some constructive movement.
Finally, on the daily chart, we see that FDX stock in March found support right where it should have — namely, at its rising 200-day simple moving average (red line).
By early May, the stock again overcame its 100-day moving average (blue line), which has been a good line of reference for shares in recent years. Then earlier this week, FDX stock bounced off this moving average, leading to Wednesday’s breakout past the diagonal line of resistance from the December 2014 top.
Wednesday’s move thus brought about some renewed upside momentum into FDX stock. A move to marginal new highs, around the $186 area, stands a good chance for the next week-and-a-half.
Any quick reversal of Wednesday’s rally would quickly call off this trade setup.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
