Another ugly day for stocks on Dec. 19 followed the latest FOMC meeting and saw damage across all sectors of the S&P 500. Transportation stocks as a group exhibited relative weakness, at least in part due to investor dissatisfaction with the earnings call from FedEx (NYSE:FDX). FDX stock as a result has dropped about 40% since the January highs and more than 20% since late November. Oversold readings are spiking and active investors and traders should sit up and take notice, for a sharp countertrend bounce could soon occur.
Mean-reversion is a powerful thing in markets. Isaac Newton taught us in his third law of motion that what goes up must come down. The stock market is not exempt from this law, although during raging, one-direction bull markets, most chart chasing traders and investors tend to forget this.
It has been my finding over the past 21 years as a professional trader and investor that when an asset gets overextended on the upside or downside, ultimately it will mean-revert rather sharply back to longer-term trends. The recent “corrective period” in the broader stock market is a good example of that.
FDX Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On a single-stock basis the multi-year chart of FDX stock is a clear example of how this can work. Note that FDX stock exhibited a steep overshooting rally in January 2018 (along with global risk assets, including most U.S. stocks). Any rallies since then only had enough energy to move to lower highs. Ultimately, all buying pressure abated and the stock caved in recent weeks.
As a result of this sharp mean-reversion move lower, FDX stock has now arrived back at its longer-standing up-trend. While the stock does not and likely will not immediately find bottom here and begin to rally again, reward to risk for buyers in my eye is now significantly better than it has been in years.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
Moving on to the daily chart, we see that FDX stock has now arrived at a horizontal support zone (marked by the blue shaded area) that roughly spans from around $150 up to $170. From a trading perspective this is the area I am watching closely for near-term seller exhaustion and a bullish reversal in the stock.
To be clear, I have yet to see seller exhaustion and any bullish reversal, but I sense we are getting really close. From a momentum perspective the MACD momentum oscillator at the bottom of the chart is deeply oversold as well. Thus, many things are lining up for a bounce in FDX stock but price action must still confirm this.
Once we see a day where FDX stock fails to stay down and rallies off its lows materially, I see a buying opportunity with a first upside target around the $180 mark.
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