Transportation giant FedEx Corporation (FDX) could issue a strong buying signal in coming days, ending an orderly correction that is now testing strong support at the 50-day exponential moving average (EMA). Market timers and trend followers could benefit from that portent, opening positions or adding shares to a blue chip leader already in breakout mode following a powerful advance above multi-year resistance between $180 and $200.

The rally could also benefit the Dow Jones Transportation Average, which has struggled since failing a breakout above 9,500 in July. Weak price action since that time has set off a series of warning signals due to the instrument's long-held reputation as a canary in the economic coal mine. Given the high stakes, the next recovery effort could dictate the broad market's behavior well into 2018. (See also: FedEx Beats on Q4 Earnings: Transport ETFs in Focus.)

FDX Long-Term Chart (1995 – 2017)

 

The stock cleared 11-year resistance in the low $20s in 1997 and entered a volatile uptrend that tripled in price into the 1999 high at $61.88. It then entered a trading range with support at $30, holding within those boundaries until 2003, when it completed a cup and handle breakout. The subsequent advance added points at a rapid pace through the mid-decade bull market, finally topping out at $121 in 2007.

A broad and narrow consolidation pattern broke down in December 2007, signaling the start of a downtrend that escalated during the 2008 economic collapse. FedEx shares suffered intense technical damage during the decline's final phase, cut in half in just three months into the March 2009 low at $34.02. Fortunately for long-term shareholders, the stock recovered at the same trajectory, completing a V-shaped pattern into the September 2008 high at $97 in April 2010. (For more, see: A Closer Look at FedEx Corporation.)

Resistance at $100 stalled progress for more than three years, ahead of a 2013 breakout that generated the most prolific gains so far this century. The rally finally ended at $183.51 in December 2014, giving way to a complex correction, followed by a December 2016 breakout that generated narrow sideways action on top of new support. Momentum buyers returned once price action cleared $200, which triggered a healthy advance that reached an all-time high at $220 on July 10.

The stock has maintained a monthly stochastics buy cycle through more than six weeks of choppy corrective action that has tested new support, while the weekly indicator crossed into a sell cycle that reached the oversold level last week.  A preliminary crossover this week predicts that it will soon bounce back to the mid-summer high, but conformation of that turnaround will take several weeks at a minimum. (To learn more, check out: Stochastics: An Accurate Buy and Sell Signal.)

FDX Short-Term Chart (2016 – 2017)

 

The 2016 breakout above the 2014 high ran into a brick wall at the psychological $200 level, generating a rectangular consolidation that lasted for more than five months. The June 2017 breakout confirmed new support at that level, while a decline into August found willing buyers at the 50-day EMA, less than five points above support. The stock is now carving an inverse head and shoulders pattern at the moving average, with a breakout above $211 confirming the weekly buy signal.

However, it is still possible that the correction will eventually break the most recent low and head into a critical test at $200. While that deeper level would offer a lower-risk buying opportunity, relative strength cycles are already turning higher, and it is common for market leaders to find buying interest well above easily observed support levels. As a result, it makes perfect sense to take long-side exposure if the base breakout unfolds as expected. (See also: FedEx Forecasts Higher Profit for FY 2018.)

The Bottom Line

FedEx may be ending the correction that started after the market leader posted an all-time high in mid-July. A breakout above an inverse head and shoulders pattern across the 50-day EMA would set off the required buying signal, with excellent odds that the subsequent advance would clear mid-summer resistance at $220 and head toward $250. (For additional reading, check out: UPS vs. FedEx: Comparing Business Models and Strategies.)

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

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