FedEx Quarter Could Reveal State of the Economy

FedEx Corporation (FDX) reports earnings next week, with Wall Street analysts expecting a profit per share of $1.86 on fiscal fourth quarter 2020 revenue of $16.7 billion. The stock bottomed out after a 77-point decline in reaction to mixed third quarter results in March, initiating a recovery wave that has recouped less than 80% of those losses. More importantly, FedEx stock has stalled below new resistance generated by a high-volume breakdown through the 2019 low in the $130s.

The stock has struggled since Amazon.com, Inc. (AMZN) decided to bring the majority of package deliveries in-house to cut costs. The competitive challenge forced a breakdown from a topping pattern in 2018 for FedEx stock, initiating a downtrend that hit a seven-year low in March. The mixed performance since that time has failed to initiate a new uptrend for FedEx, despite a temporary resumption in Amazon business, unlike many blue chips in recent weeks.

The company suspended the fiscal year 2020 forecast in March, citing the pandemic uncertainty, but it offered a marginally positive update in April that cited improved Asian demand. However, most of the release focused on a deteriorating liquidity outlook, revealing instability that could plague the company in coming quarters. A recent $348 million impairment charge continued this theme, with write-downs intended to strengthen the company's balance sheet.

Next week's confessional should be watched closely because the packaging industry can act as a "canary-in-the-coalmine" for the U.S. economy, expanding with economic growth and shrinking during recessions and downturns. Long-term fallout from the pandemic has been tough to evaluate due to political influences and misinformation, with surging cases in the South and Southwest, as well as low odds for an effective vaccine until 2021, containing optimism.

Fedex Long-Term Chart (1991 – 2020)

An uptrend in FedEx shares made steady progress through most of the 1990s, topping out at $61.88 in the second quarter of 1999. The stock sold off to $30 about nine months later, completing a trading range that held intact until a 2003 cup and handle breakout. That rally unfolded through multiple waves, reaching $120.01 in May 2006. That marked the highest high for the next seven years, ahead of a broad topping pattern that broke to the downside in the fourth quarter of 2007.

The stock plunged to a seven-year low in the lower $30s in 2009 and turned higher, stalling near $100 in 2010. That level contained progress into a 2013 breakout that marked the start of exceptionally strong price action and healthy returns. The uptick paused in 2014 and resumed in 2016, more than doubling in price into January 2018's all-time high at $274.66. It then carved a broad descending triangle, breaking down in the fourth quarter.

FedEx Short-Term Outlook

Buyers reemerged after the December low at $155, but the subsequent uptick stalled well below the prior high, carving the first in a series of lower highs that have continued unabated through the second quarter of 2020. It broke 2018 and 2019 support during the first quarter swoon, establishing new resistance in the $130s and $140s. The second quarter bounce has failed to remount either barrier, keeping the long-term downtrend fully intact.

The monthly stochastic oscillator carved a 13-month rounded bottom and entered a new buy cycle in March 2020, predicting relative strength through year end. This signal hasn't translated into much upside yet, perhaps because price action has drawn a descending channel since December 2018, with the second quarter bounce reversing at channel resistance earlier this month. An upside channel breakout will be needed in this configuration to set off additional buying signals, but the 50-month exponential moving average (EMA) near $170 is likely to end any advance dead in its tracks.

The Bottom Line

FedEx stock has bounced off a seven-year low but failed to remount key price levels broken in the first quarter selloff.

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