United Parcel Service, Inc. (NYSE:UPS) has seen quite the V-shaped price movement year-to-date. After being in free-fall well into the second half of January, a sharp rebound occurred, leaving UPS stock now marginally higher on the year.
But looking ahead, UPS’ chart is littered with technical resistance, and the global economic slowdown is also serving as a stiff headwind. For traders and the active investing crowd, UPS stock could be a prime candidate to sell or short in coming days or weeks.
Several times through the second half of 2015, I highlighted in this column the relative weakness that transportation stocks as a group flashed through much of 2015. Well, that relative weakness has continued as an intermediate trend, and I fully expect this to continue at least through the spring months.
Let’s dig right into the charts.
UPS Stock Charts
On the multiyear weekly chart, we see that after a prolonged topping pattern, UPS in January finally broke below neckline support, as marked by the blue box. The topping pattern in essence began developing in December 2013 and took just about two years to complete. This should highlight the importance of traders and investors alike keeping perspective on the near-, intermediate- and longer-term trends in any stock, index, commodity or currency.
Note that when UPS stock broke below horizontal support in January, it also snapped its 2009 support line for the first time. Both the former horizontal support area as well as the 2009 line could now act as resistance — and that’s where the opportunity for the bears lies.
On the daily chart, we see that UPS in recent weeks bounced back sharply after having reached seriously oversold conditions in the second half of January. But the bounce on the daily chart is only bringing it back into a possible resistance zone. Note that the stock now sits at a confluence resistance zone made up of both its 100- and 200-day moving averages (blue and red lines, respectively) as well as at 61.8% Fibonacci retracement of the move from the November 2015 highs down to the January 2016 lows.
One of my mentors at JPMorgan used to remind me that in bear markets it doesn’t pay to “anticipate” certain price action, but rather that we must only react to confirmed bearish reversals to sell/short any stock, commodity or other asset class.
This advice has served me well in my career, where thus far I have witnessed and traded through at least a dozen vicious bear markets in different asset classes and or single-name stocks.
Let’s apply this lesson to UPS’ position.
UPS stock now sits at the resistance on both the weekly and the daily charts as discussed above, but the one crucial missing ingredient remains an actual bearish reversal by price. In other words, until we see a strong bearish (down) day in UPS stock, the odds to short the stock simply aren’t good enough just yet.
Note that UPS rival FedEx Corporation (NYSE:FDX) is scheduled to report earnings on March 16, followed by UPS reporting in late April. These could be dates to watch for reversals in these stocks, although a bearish reversal could also come much sooner if the broader market turns back lower. Stay patient, and don’t anticipate but wait for a bearish reversal to rear its head to play UPS stock to the downside, where an intermediate-term downside target in the low to mid-$80s makes sense.
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