Transportation giant FedEx (NYSE:FDX) reported earnings Wednesday morning, which led to a fairly muted reaction of about a 1% gain in the stock price – that is if one only considers the price at day’s end. The company blamed some weakness on the effect from Hurricane Sandy and cited forward guidance that was below Street estimates.
FDX moved off the 2009 lows along with the rest of the market, especially closely resembling the chart of the Dow Jones Transportation Index … to not much surprise, of course. On the weekly chart, the stock has routinely been bumping up to a resistance line since the second half of 2011, where it again failed to break past Wednesday.
If I draw the price of FDX and that of the iShares Dow Jones Transportation ETF (NYSE:IYT) on one chart, the positive correlation between the two of them becomes even more apparent. So far in 2012, however, FDX, which is up around 10%, is easily outperforming the transportation index, which is up a little over 5%.
The iShares Dow Jones Transportation ETF, unlike FedEx, managed to break above its resistance line earlier this week, but from a momentum point of view is now overbought in the near-term.
FDX, while closing higher by about 1% on the day Wednesday, at one point was up closer to 3.30% but then sold off into the close (maybe along with the broader market), leaving a long shooting-star candle pattern behind on its daily chart. As mentioned above, this shooting star also coincided with the longer-term down-trending resistance from the weekly chart, and near-term overbought conditions from a momentum point of view.
Given the technical signs on FDX’s chart, along with the breakout of the transportation index, which should now consolidate before ultimately heading higher, a short-side trade on FedEx into year-end is setting up.
Because of the time of year, this trade is purely opportunistic and quick in style. Short FDX at current levels, as risk is limited to the high of Wednesday’s trade at $95.44, with a price target closer to the $91 mark. One could also use January at the money put options for this trade to gain some leverage.