FedEx Delivers Earnings Beat, Gaps Above Key Moving Average

FedEx Corporation (FDX) beat earnings per share estimates on June 30, and the stock popped above its 200-day simple moving average at $140.91 on July 1. The July 1 high was $163.65, and since then, the stock slipped to $153.66 on July 6.

The worldwide package delivery giant has been in recovery mode since trading as low as $88.69 on March 17. FedEx stock closed Monday, July 6, at $156.27, up 3.1% year to date and in bull market territory at 76.2% above its March 17 low of $88.69. The stock is also in correction territory at 12.5% below its high of $178.50 posted on July 24, 2019.

FedEx is reasonably priced, with a P/E ratio of 16.37 and a dividend yield of 1.67%, according to Macrotrends. The stock had been below a death cross, but that ended with the positive reaction to earnings. The stock is above its monthly value level at $126.47 and is well below its semiannual risk level at $212.06.

The daily chart for FedEx

FedEx stock had been below a death cross since Aug. 8, 2018, when the 50-day simple moving average declined below the 200-day simple moving average. This indicated that lower prices would follow.

Note the opportunities to sell the stock on strength to the 200-day simple moving average. Sales at this average could have been done on Sep. 12, 2019; Dec. 13, 2019; and Feb. 12, 2020. This tracked the stock to its March 17 low of $88.69.

On the rebound, the stock returned to its 200-day simple moving average on June 5. Note the spike higher on July 1 on the positive reaction to earnings. The stock is now above its 200-day simple moving average at $140.81 and its monthly value level at $126.47. The stock is well below its semiannual risky level at $212.06.

The weekly chart for FedEx 

The weekly chart for FedEx is positive, with the stock above its five-week modified moving average of $139.36. The stock is below its 200-week simple moving average, or reversion to the mean, at $192.67. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 72.26 this week, up from 69.28 on July 3.

Trading strategy: Buy FedEx stock on weakness to its 200-day simple moving average at $140.81 and its monthly value level at $126.47. Reduce holdings on strength to its 200-week simple moving average at $192.67 and its semiannual risky level at $212.06.

How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. The annual levels remain on the charts. The monthly level for July was based upon the last nine monthly closes, the third quarter level was based upon the last nine quarterly closes, and the second half 2020 level was based upon the last nine mid-year closes. New weekly levels are calculated after the end of each week.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.