FedEx (FDX) - Get Report reports earnings after the closing bell on Tues., Sept. 17, with the stock a significant laggard so far in 2019. My call is to buy the stock up to its 200-day simple moving average at $173.54 and add to positions on weakness to its five-week modified moving average at $165.81 as its weekly chart should remain positive through earnings results.
Tuesday morning, Sept. 17, we learned that FedEx will increase delivery rates in January. The good news is that the package delivery giant will not apply residential surcharges during the 2019 holiday season, with some exceptions.
FedEx closed Monday at $173.57, up 7.6% year to date and in bear-market territory 33% below its 52-week intraday high of $259.25 set on Sept. 17, 2018, one year ago. The stock is 17.4% above its 2019 low of $147.82 set on Aug. 28. Longer term, shares of FedEx slumped by 46% from its all-time intraday high of $274.66 set on Jan. 19, 2018, to its 2019 low of $147.82 set on Aug. 28, 2019.
Analysts expect FedEx to show earnings of $3.16 to $3.23 per share when it reports after the closing bell Sept. 17. The stock is fundamentally cheap, with a P/E ratio of 11.21 and a dividend yield of 1.49%, according to Macrotrends. Given weak free cash flow, FedEx will not increase its dividend and its share buy-back program has ended. A key will be the status of Express and Ground deliveries as they are 90% of operating income.
The Daily Chart for FedEx
Courtesy of Refinitiv XENITH
FedEx has been below a "death cross" since Aug. 8 when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices would follow. As this signal formed, investors had several opportunities to sell the stock at its 200-day SMA when it was as high as $247.20 on Sept. 18, 2018, after the earnings miss reported on Sept. 17 last year. The "death cross" tracked the stock to its Aug. 28, 2019 low of $147.82. The stock has been below its annual risky level at $218.11 all year long. Since June 28, the stock has been below its third-quarter risky level at $194.71 and below its second-half semiannual risky level at $209.85. In September, the stock was below its monthly risky level at $179.93, but for this week, it's above a weekly value level at $161.1. The stock has been testing its 200-day SMA at $173.54 over the last few days.
The Weekly Chart for FedEx
Courtesy of Refinitiv XENITH
The weekly chart for FedEx is positive with the stock above its five-week modified moving average of $165.81. The upside potential is to its 200-week simple moving average or "reversion to the mean" at $195.40. The stock has been below the "reversion to the mean" since the week of April 26. The 12x3x3 weekly slow stochastic reading is projected to rise to 49.30 this week up from 38.05 on Sept. 13.
Trading Strategy: Buy weakness up to the 200-day simple moving average at $173.54 and add to positions on weakness to the five-week modified moving average at $165.81. Reduce holdings on strength to its quarterly risky level at $194.71 and its "reversion to the mean" at $195.40.
How to Use My Value Levels and Risky Levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play.
The weekly level changes each week. The monthly level changes at the end of each month, the latest on Aug. 30. The quarterly level was changed at the end of June.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in already.
To capture share price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to Use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low vs. the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.