Shares in parcel express company FedEx (FDX) have surged 87% since September last year.
Recently, that rally accelerated again with news of an impending strike from its rival, United Parcel Service (UPS).
Yet FedEx has seen a slowdown in parcel volume compared to the pandemic years. And it has been busy cutting jobs and other costs out of its business.
And after such a strong run-up, FDX might be overbought and in danger of a potential reversal.
So today, I want to see what’s in store from here…
Crossing Support and Resistance
On the left-hand side of the chart below, you can see the 20%-plus fall after FDX’s dismal Q1 preliminary earnings.
FDX gapped and then steadily fell further. It bottomed out on September 27 at ‘A.’
FedEx (FDX)
Source: eSignal
FDX’s reversal from ‘A’ coincided with the Relative Strength Index (RSI) forming a ‘V.’ The RSI rallied (red line) from well in oversold territory (lower grey dashed line).
That rally developed along with two bullish technical signals:
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The RSI broke up through resistance (green line) and started to track in the upper half of its range. Apart from a couple of dips in December and March, that’s where the RSI remained.
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The 10-day Moving Average (MA, red line) crossed above the longer-term 50-day MA (blue line) with both MAs trending higher.
But FDX struggled for direction after making a minor peak at ‘B.’
FDX gradually drifted lower from April through to June. And the RSI initially fell and then crisscrossed multiple times across support/resistance.
Only when the RSI broke through resistance and gained traction in its upper band in mid-June did FDX’s rally resume.
Take another look:
FedEx (FDX)
Source: eSignal
That next leg of the rally got confirmation when the 10-day MA crossed above the 50-day MA again and accelerated higher.
But that recent push higher put the RSI into overbought territory (upper grey dashed line). That showed signs that FDX could be overheating.
And although it’s still early days with this move, the RSI and stock price are traveling in different directions…
The RSI has been trending lower (lower orange line) while FDX has been making higher highs (upper orange line).
When price action and the RSI start diverging like this, that can often lead to a change of direction.
So what am I looking for around here?
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Tracking Toward Support
One of the features of FDX’s rally has been the action of the RSI around overbought territory…
Often the RSI stayed in this region for extended periods while FDX either tracked sideways or rallied. Take a look at November 2022 or February and April this year as examples.
If you entered a short position based solely on the RSI being in overbought territory, you would likely have lost money.
That’s why I’m watching the current RSI action closely…
If the RSI meanders along the overbought level, then going short would become a low-probability trade.
We need to see the RSI clearly sinking down toward support and the 10-day MA rolling over and nearing the 50-day MA before considering a short position.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
Mailbag
Where do you think FedEx is heading? Send in your thoughts or any questions to [email protected]. We always love hearing from readers.
Hi Larry, I’m really looking forward to this. I live in Australia. I’m a mad kite surfer and I’ve been trying to trade profitably for a long time, but looking back, I put my lack of success down to overtrading and distractions.
Just thought I’d let you know that I have only switched to options for a few months now, and, boy, I’ve learnt heaps… Cheers, and I’ll check in with you in a few months.
– Mark J.