Transport stocks are trucking higher once more. And that has FedEx Corporation (NYSE:FDX) square in the sights of bulls. Unlike most of the Street, FDX has already reported its latest quarterly earnings so traders can swing away without fear of a poor release throwing a wrench into what is becoming quite the beautiful chart.
To set the stage, let’s first look at the iShares Transporation Average ETF (NYSEARCA:IYT). Since January’s dive, IYT has been stuck in a volatile trading range beneath the pivotal 50-day moving average. Fortunately, its latest downswing found support once again at the 200-day moving average, giving a reason for bottom-fishers to cast a line. Monday’s breakout sealed the deal, vaulting the sector back above horizontal resistance.
Today’s high-volume launch is providing perfect follow-through to confirm the legitimacy of the break.
The price action in FedEx stock has been virtually identical. This shouldn’t be surprising because it’s the largest holding in IYT.
To add further color to the analysis, consider the RSI indicator shown in the lower panel. Long used by momentum followers, the RSI can confirm the strength of a rally. The area above 50 is bull territory and below 50 is bear territory. Note how it has risen to 63 this week, its highest level since mid-January. That’s bullish and helps validate the stock’s return to strength.
Order Profits with a FedEx Call Spread
The high price tag of FedEx shares makes it a tricky underlying for buying calls outright. Instead, purchase a bull call spread. If you’re willing to wager the trucking titan can travel to $270 over the next two months, then buy the Jun $260/$270 bull call spread for around $3.30.
The risk is limited to the initial cost and will be lost if the stock sits below $260 at expiration. On the profit side, you could gain $6.70 if FDX rises above $270.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.