Packaging giant FedEx Corporation (FDX) has seen its shares drop 30 points in the past three weeks, and the stock has now lost nearly 8% since the first trading day of 2018. That's a startling turnaround for the perennial market leader, which posted double-digit percentage returns in 2016 and 2017. More importantly, this bearish price action is filling out a broad topping pattern that could eventually signal the end of its multi-year bull run.
This early cyclical play and its rival United Parcel Service, Inc. (UPS) have long held reputations as canaries in the coalmine for the U.S. economy, measuring the output of American industry through their shipping habits. The addition of e-commerce in the past two decades has bolstered this long-observed correlation, raising red flags whenever these stocks underperform major benchmarks.
Ominously, the broad transportation sector has turned lower despite the new treaty between U.S., Canada and Mexico. A NAFTA withdrawal was viewed as the primary roadblock to industry volumes prior to the agreement, keeping a lid on the Dow Jones Transportation Average. However, that instrument has dropped more than 4% since the treaty was announced, signaling a bearish divergence that may also foretell a weaker economic environment in the coming months. (See also: Tips for Trading the Dow Jones Transportation Average.)
FDX Long-Term Chart (1990 – 2018)
A steep downtrend ended at a six-year low in 1990, giving way to a persistent uptrend that stalled in the lower $60s in 1999. The stock fell into a trading range during the 2000-2002 bear market, finally breaking out to a new high in 2003. It performed well through the mid-decade bull market, doubling in price into the May 2006 top at $120. A 2007 breakout attempt failed, giving way to an orderly pullback that accelerated during the 2008 economic crisis.
A seven-year low in March 2009 marked a historic buying opportunity, ahead of a vertical recovery wave that stalled in the mid-$90s in 2010. It finally cleared that barrier in 2013, entering a strong uptrend that topped $180 in the fourth quarter of 2014. The stock broke out above that level following the presidential election, posting excellent gains into January 2018's all-time high at $274.66.
The monthly stochastics oscillator entered a sell cycle in February 2018 and stopped falling at a horizontal trendline going back to 2012 (blue line), suggesting actionable buy or sell signals around this level. A June bounce stalled quickly, yielding a test that may coincide with price reaching triangle support. A second bounce will mark a potential buying opportunity in this scenario, while a breakdown will forecast much lower prices. (For more, see: A Closer Look at FedEx Corporation.)
FDX Short-Term Chart (2017 – 2018)
Lower highs and lower lows since the January top have eroded the stock's pristine technical reputation, breaking 200-day exponential moving average (EMA) support for the first time since March 2016 while carving a potential descending triangle top. Triangle support is centered at $225, but dip buyers may take entries down to $220 or so, with the blue line marking the trendline of lower lows. A breakdown through the bottom of that price zone would set off a host of major sell signals.
The on–balance volume (OBV) accumulation-distribution indicator looks more constructive than the price chart, topping out in January 2018 and dropping into a sideways oscillation that indicates shareholder patience after years of excellent returns. A decline through the June low (red line) would signal rising fear and deteriorating sentiment, indicating that retail and institutional players are closing out positions and hitting the sidelines. (See also: FedEx Delivers Earnings Below 2018 Downtrend.)
The Bottom Line
FedEx is nearing 2018 support following a 30-point decline, while technical indicators predict a critical test of the stock's long-term uptrend. A breakdown would flash warning signs for U.S. economic growth due to the stock's early cyclical reputation. (For additional reading, check out: 5 Reasons Why UPS Will Outperform: BMO.)
<Disclosure: The author held no positions in aforementioned securities at the time of publication.>