FedEx (FDX) Testing 2018 Resistance Ahead of Earnings

FedEx Corporation (FDX) reports fiscal second quarter 2021 earnings after Thursday's opening bell, with analysts looking for a profit of $3.94 per share on $19.40 billion in revenue. If met, earnings per share (EPS) will mark a healthy 57% profit increase compared to the same quarter in 2019. The stock rallied nearly 6% after beating first quarter top- and bottom-line estimates by wide margins in September and rallied to an all-time high one month later.

Key Takeaways

  • FedEx stock has gained a remarkable 91% year-to-date return.
  • A long-term downtrend ended after, Inc. (AMZN) suspended an in-house delivery initiative.
  • FedEx stock has been testing 2018 resistance since October.
  • Price action is still working off overbought technical readings.

The shipping giant has been on a roll since April, when Amazon suspended the expansion of in-house delivery services to focus resources on rapidly growing market share. FedEx stock has more than doubled since that time and now boasts a phenomenal 91% year-to-date return. However, the upside has paused in the past two months, with overbought technical readings generating two-sided price action that has crisscrossed the January 2018 high at $274.66.

Holiday sales have missed the mark so far in 2020 due to high unemployment and the COVID-19 pandemic, potentially lowering year-end shipping volumes. This could weigh on fourth quarter revenue, so market watchers should pay attention to guidance in this week's confessional, listening for clues about current demand. In addition, the stock still hasn't confirmed the breakout above the 2018 high and didn't post a significant pullback between June and October.

Wall Street consensus on FedEx stock has soared in 2020, with a current "Strong Buy" rating based upon 16 "Buy" and 4 "Hold" recommendations. No analysts are recommending that shareholders hit the sidelines, despite historic share price gains. Price targets range from a low of $250 to a Street-high $380, while the stock is set to open Monday's session about $22 below the median $322 target. There should be plenty of upside in this humble configuration if the report exceeds expectations.

Market share is the percent of total sales in an industry generated by a particular company. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its market and its competitors. 

FedEx Weekly Chart (2013 – 2020)

Chart showing the share price performance of FedEx Corporation (FDX)

The stock completed a round trip into the 2007 high at $121.42 in the fourth quarter of 2013 and broke out, entering a healthy trend advance that topped out above $180 at the start of 2015. It fell to a two-year low in 2016 and turned higher once again, breaking out above the prior peak after the presidential election. Channeled price action stalled near $275 in January 2018, when President Trump fired the first shot of the trade war with China.

A descending triangle broke down in October 2018, signaling the first major downtrend of the decade. Losses accelerated during the first quarter's pandemic decline, dropping the stock to a seven-year low in the double digits. The subsequent bounce gathered momentum after the Amazon news, fueling a nearly vertical uptrend into the October high at $293.30. A December breakout attempt has lost steam, giving way to sideways action that could test intermediate support near $275.

Price action is trying to confirm a breakout above the 2018 high in the $270s. It is now trading above that barrier but showing few signs of directional momentum, which is needed to set off reliable buying signals. Round number and psychological resistance at $300 is contributing to this conflict, with a high-volume rally or gap above the number having the power to bring more defensive investors off the sidelines.

A descending triangle is a bearish chart pattern used in technical analysis that is created by drawing one trendline that connects a series of lower highs and a second horizontal trendline that connects a series of lows. Oftentimes, traders watch for a move below the lower support trendline because it suggests that the downward momentum is building and a breakdown is imminent.

The Bottom Line

FedEx stock is testing a breakout above the 2018 high ahead of this week's earnings report.

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

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