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Chart Of The Day: FedEx Flashes Rare Bearish Signal Ahead Of Earnings Report

By Investing.com (Pinchas Cohen/Investing.com)Stock MarketsSep 20, 2021 09:34AM ET
www.investing.com/analysis/chart-of-the-day-fedex-flashes-rare-bearish-signal-ahead-of-earnings-report-200602424
Chart Of The Day: FedEx Flashes Rare Bearish Signal Ahead Of Earnings Report
By Investing.com (Pinchas Cohen/Investing.com)   |  Sep 20, 2021 09:34AM ET
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After a stellar period during which freight and logistics giant FedEx (NYSE:FDX) saw a surge in demand for its services during the pandemic, the Memphis, Tennesse-based parcel shipper is now struggling to grow profits amid evolving social restrictions and a changing market. As remote work continues trending, the company has been trying to restructure its business, an effort that was initiated even before the COVID outbreak started.

Even as the company continues to adapt to the constraints of this new economy, investors will be watching FedEx's Q1 fiscal 2022 earnings report, released tomorrow after the market close, to see if any of the company's changes have had an effect during the previous quarter.

The consensus forecast for FedEx is for the company to show an EPS of $4.94 on revenue of $21.9 billion. That would be somewhat higher than last year’s corresponding quarter, during which earnings came in at $4.87 EPS and a $19.3 billion revenue.

Last year's results handily beat expectations of $2.7 EPS, $19.3 billion revenue. But at that stage of the pandemic, FedEx was able to surprise since there was a low bar set during the height of the pandemic. For comparison, earnings estimates for the corresponding quarter in 2019 were $3.15 EPS on $17.06 billion, though the company fell short of that at the time.

Will FedEx surprise again even if expectations remain lower?

UBS analyst Thomas Wadewitz doesn’t think so. He reduced his price target on the stock, which closed on Friday at $255.22, to $380 from $397. That still leaves an implied 47.2% upside in the following 12 months. However, Wadewitz sees the recent spike in prices and disruption to the global supply chain as hurting the previous quarter’s results.

From a technical perspective, FedEx triggered a bearish signal in the most inopportune time for bulls, right ahead of the company's earnings report.

The recent selloff in its shares dragged down the 50 DMA below the 200 DMA, creating a Death Cross. That means the average performance over the last 50 trading days weakened, providing worse returns than the average of the previous 200 sessions.

FDX Daily with Death Cross
FDX Daily with Death Cross

Moreover, this cross is especially “deathly,” given that even the 200 DMA has been sinking. Notice how it curves below the dotted red line, slumping from its July 30 peak. That means the average share price over the past 50 days has been dismal the stock is even underperforming its own falling 200 DMA.

If the textbook bearish prediction of a Death Cross follows through, the stock could be in even worse trouble.

FDX Daily
FDX Daily

If the price drops below $234.82, the Jan. 29 low, the stock may top out. That would imply a near-$85 plummet from the point of breakout. That’s a 36% plunge.

Trading Strategies

Conservative traders should wait for the price to top out, after which it would should below $230 to filter out a bear-trap, then provide a return move to retest the presumed resistance at the January low, before risking a short position.

Moderate traders would sell on rallies when they identify exhaustion.

Aggressive traders could short now, provided they own the added risk proportionate to the higher rewards which could come by moving before the rest of the market.

Trade Sample – Aggressive Short Set-Up

  • Entry: $255
  • Stop-Loss: $260
  • Risk: $5
  • Target: $235
  • Reward: $20
  • Risk:Reward Ratio: 1:4
Chart Of The Day: FedEx Flashes Rare Bearish Signal Ahead Of Earnings Report
 

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Chart Of The Day: FedEx Flashes Rare Bearish Signal Ahead Of Earnings Report

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Comments (3)
Mehmet Dutlu
Mehmet Dutlu Sep 20, 2021 2:03PM ET
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Really good analysis!
Pinchas Cohen
Pinchas Cohen Sep 20, 2021 2:03PM ET
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Thanks, Mehmet!
Nick Farr
Nick Farr Sep 20, 2021 9:21AM ET
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erm.. Is this with or without the pinch of salt Sir?...
Amie Inconnue
Amie Inconnue Sep 20, 2021 8:06AM ET
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Thank you, Pinchas, for the detailed explanation!
Pinchas Cohen
Pinchas Cohen Sep 20, 2021 8:06AM ET
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You're welcome, Amie!
 
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