FedEx Stuck in Major Downtrend Ahead of Earnings

FedEx Corporation (FDX) releases fiscal third quarter results after Tuesday's closing bell, with analysts expecting earnings per share (EPS) of $3.12 on $17.7 billion in revenues. The company beat second quarter estimates in December but lowered 2019 guidance, citing European weakness, triggering a 12% one-day decline. A bounce into February recouped those losses, but the transportation giant has lost ground into March, despite broad market strength.

Amazon.com, Inc. (AMZN) has launched Prime Air, a delivery service that will compete with major shippers, forcing analysts to lower FedEx estimates. The December warning partially reflects that initiative, but it's hard to gauge the financial impact because the Amazon service may also include a drone delivery system along with traditional jet and ground logistics. However, no roll-out date has been announced, while numerous regulatory obstacles remain in place.

FedEx stock has hugged 50-day exponential moving average (EMA) resistance since reversing in February, offering an opportunity to ease bearish technicals because little buying power will be needed to clear this hurdle, which is situated near $180. In turn, that could yield a crucial test at the 200-day EMA near $200, which has marked major resistance since an October breakdown kicked off a 37% fourth quarter decline.

FDX Long-Term Chart (1990 – 2019)

A 1990 reversal in the single digits marked the start of a powerful trend advance that stalled in the lower $60s in 1999. It sold off to $30 in the first quarter of 2000 and bounced at that support level following the Sept. 11 attacks in 2001, lifting back to the prior high in the first quarter of 2002. A 2003 breakout caught fire, generating a healthy series of higher highs and higher lows into the 2007 top at $121.42.

A pullback into 2008 escalated during the economic collapse, dumping the stock into 10-year support in the lower $30s. That marked a historic buying opportunity, ahead of a two-legged recovery that reached the 2007 high in 2013. It broke out immediately, gaining ground into the fourth quarter of 2014, when it topped out above $180. A breakout attempt six months later attracted aggressive selling pressure, triggering a steep downturn that continued into 2016.

FedEx shares bottomed out at a two-year low in January 2016 and turned higher, reaching 2014 resistance just two weeks after the presidential election. A breakout into December generated little buying interest, yielding seven months of sideways action, followed by rapid price gains into January 2018's all-time high at $274.66. The stock got pummeled in the subsequent decline, dropping more than 45% into the December low near $150.

The monthly stochastics oscillator entered a sell cycle in February 2018 that has now entered its 14th month. This is much longer than average, but the stock still hasn't reached the oversold zone, denying contrary buying signals. That might not be needed because a positive reaction to this week's earnings report, followed by a few days of buying pressure, has the power to finally trigger a bullish crossover.

FDX Short-Term Chart (2016 – 2019)

The decline into December 2018 found support at the .786 Fibonacci retracement level of the three-year uptrend after breaking down from a 12-month declining channel. The 200-day EMA is slowly aligning with new resistance and the 50-month EMA, setting up a nearly impenetrable barrier near $200. It will trade extraordinary buying power to mount this level, telling market players and trapped shareholders to use rallies to exit positions or flip to the short side.

The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high in June 2018, nearly six months after price, and entered an aggressive distribution phase that reached an 18-month low in December. Buying pressure into February recouped about half the loss, but distribution has resumed into March, reflecting major caution ahead of this week's confessional.

The Bottom Line

FedEx stock needs to mount the 50-day EMA at $180 after Tuesday's earnings report to improve the short-term outlook and support an oversold bounce into heavy resistance near $200.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.