Shares of FedEx Corporation (NYSE:FDX), though higher by about 3.7% year-to-date, have largely trotted sideways in a choppy but well-defined range. As the broader market remains defiant but also lacks any meaningful upside momentum, one strategy is to look to important blue chips — like FDX stock — for potential breakout plays.
Let’s start today’s analysis by gaining some perspective on transportation stocks a group through the chart of the iShares Dow Jones Transport. Avg. (ETF) (NYSEARCA:IYT).
Why look at this ETF to gain perspective on shares of FedEx, you ask? Stocks as an asset class are highly correlated, particularly if we look to individual stock sectors and groups. Thus, if we find something bullish or bearish on the sector or group front, then applying this type of “top-down” analysis will help us boost our chances of getting the single stock’s direction correct.
Anyway, FDX stock has a 13% weight in the IYT, so it’s strongly responsible for the lackluster performance of the fund since it topped out this past February.
At the bottom of the chart, we see the relative performance of the IYT ETF versus the broader large-cap stock market, which clearly shows underperformance. Yet this underperformance recently pulled the IYT back to a key area of confluence support.
This area around the $158-$160 mark is made up of horizontal support, as well as the 200-day simple moving average (red). Over the past few days, the transportation stocks have already begun to bounce. If momentum can sustain, it’s not unthinkable that the IYT could break higher out of its multimonth consolidation range.
That brings us to FedEx.
FDX Stock Charts
On the multiyear weekly chart below, we see that FedEx shares last November, following the election, broke past key horizontal resistance around $180-$185, but quickly fell into a sideways consolidation range.
The bulls will point to the fact that this consolidation is taking place above former technical resistance (true). But the bears will note that the sideways range is not bullish until we see a continuation breakout to the upside (also hard to argue against).
Lastly, on the daily chart we see that FedEx’s sideways range in recent months did allow its 200-day simple moving average (red) to play some catch-up, which also makes it a next key area of support.
Traders looking to play a breakout in FDX stock may have to exercise further patience.
However, the broader stock market continues to slowly grind higher, and the technical support backdrop for transportation stocks as a group is strong. Thus, I believe an eventual breakout above the $196 level on a daily and preferably on a weekly closing basis could get a next leg higher toward $210 underway.
If nothing else, trading FedEx like this strikes me a more sane strategy for the near-term than chasing overextended large cap tech stocks higher at all-time highs.
EDITOR’S NOTE: Beat the Bell Editor Serge Berge will be moving on to the Daily Trader’s Alert on June 1. To learn more about how to continue following Serge, as well as Beat the Bell’s new editor, Tyler Craig, click here.
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