NEW YORK (Real Money) --United Parcel Service (UPS) was upgraded to buy from neutral by Goldman Sachs last week, with a $119 price target. The UPS chart looks good, but the chart of competitor FedEx (FDX) looks even better.
First, the UPS weekly chart shows the stock moving in a horizontal channel for most of 2014 before breaking out to new highs into the end of the year. That rally quickly faded and the stock price dropped back into the channel zone early this year, but it has managed to fight its way back, and last week it moved above the channel top on strong volume. The Relative Strength Index and the volume-weighted Money Flow Index are both above their centerlines, reflecting the positive price and money flow momentum.
On the daily chart, the January drop can be seen as a 10% gap down after the company reported disappointing guidance, and the subsequent consolidation below the 2014 high level has taken on the look of an inverse head-and-shoulders base. Neckline resistance and the 200-day moving average are being tested, but entering a long position requires a strong close in upper candle range above this resistance zone, with an initial percentage stop below it.
The second candidate in the space looks better positioned technically to move ahead in the intermediate term. Shares of FedEx have nearly doubled since their 2012 low, which was the last time the 50-day moving average was below the 200-day average, but over the last six months they have been consolidating in a declining channel.
Last month, they bounced off channel support and the 200-day moving average and made a higher low, and now have moved back up to retest the top end of the pattern. In the process, they formed a cup-and-handle pattern with rim line resistance intersecting with channel resistance in the $175 area. Moving Average Convergence/Divergence and the Relative Strength Index reflect the positive price momentum, and buying interest is indicated in the Chaikin Money Flow reading.
FedEx is a buy at its current level with an initial percentage stop under the rim line of the pattern.
Editor's Note: This article was originally published at 1:48 p.m. EDT on Real Money Pro on May 18.