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FedEx Shares Face Considerable Downside Risk on DOJ Indictment

Stocks in this article: FDX

NEW YORK (TheStreet) -- Drug trafficking is a serious crime and shares of FedEx (FDX) shares are vulnerable following the package delivery company's disclosure that the Department of Justice filed criminal charges that the company was shipping misbranded controlled substances such as Ambient and Valium.

If the company is found guilty, shares of FedEx could take a serious hit. But such an event could take months.

FedEx is a member of the Dow Jones Transportation Average ,which set an all-time intraday high at 8406.17 on Thursday helped by strength in FedEx. This average has a positive but overbought weekly chart with its five-week modified moving average at 8136.65.

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FedEx ($151.90) reported quarterly results on June 18 for its quarter that ended in May and the company beat analysts estimates by 10 cents earning $2.46. The stock is up 46% over the last 12 months and has a 12 month trailing earnings per share ratio that's elevated at 21.8. The dividend yield is a paltry 0.5%.

Let's look at the daily chart:

Courtesy of MetaStock Xenith

FedEx traded to an all time intraday high at $155.31 on Thursday, then ended the day below Wednesday's low at $152.25. This is the first step in a daily key reversal. FedEx would have to close lower today, below Thursday's close at $191.90 to continue the reversal signal. A lower close today and Monday would confirm the key reversal. Shares are currently around $152.

So far today the stock has held its 21-day simple moving average at $151.19 and is well above its 50-day and 200-day SMAs at $145.41 and $137.09, respectively. FedEx has been above its 200-day since June 25, 2013 and that's the downside risk on a short-term "reversion to the mean."

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