FedEx to Report, Near High With Dow Transports in Correction Mode

NEW YORK (TheStreet) -- Package delivery company FedEx (FDX) reports fiscal third-quarter earnings before the opening bell on Wednesday, and with the stock setting an all-time high last week, an earnings beat might be priced into the momentum run-up for the stock.

The reason for concern is that the Dow Jones Transportation Average is in correction mode, down 10% from its all-time intraday high of 9,310.33 set on Nov. 28.

Analysts expect FedEx to earn $2.70 a share, and on Monday Deutsche Bank reiterated its "buy" rating and raised its price target to $216 from $209. The consensus is that FedEx will beat estimates, which raises the bar in reaction to the results.

One thing to consider is that the U.S. Postal Service is taking market share from FedEx by delivering packages from Amazon.com (AMZN) fulfillment centers to their prime customers, including deliveries on Sunday.

Let's look at the daily and weekly charts for the Dow Jones Transportation Average, then do the same for FedEx.

Here is the daily chart for the transports:


Courtesy of MetaStock Xenith

The Dow transports closed at 8,375.86 on Monday, down 8.4% year to date and 10% below its all-time intraday high.

The transports were trading back and forth around their 200-day simple moving average between March 26 and May 19, then came the "death cross" on May 26. This bearish formation continues with the 50-day SMA of 8,606.26, below the 200-day SMA of 8,749.25.

Here is the weekly chart for the transports:


Courtesy of MetaStock Xenith

The weekly chart for the transports is negative but oversold, with the index below its key weekly moving average of 8,531.18 and with a projected momentum reading of 18.90 below the oversold threshold of 20 since June 5. The bull versus bear tug-of-war will be won by the bulls if the transports end the week on Friday above 8,531.18.

Here is the daily chart for FedEx:


Courtesy of MetaStock Xenith

FedEx had a close of $182.66 on Monday, up 5.2% year to date, setting an all-time intraday high of $185.19 set on June 11.

Note how the stock held its 200-day SMA at its year-to-date low of $163.60 set on March 26. The stock is well above its 50-day and 200-day SMAs, which are $174.07 and $170.06, respectively.

Here is the weekly chart for FedEx:


Courtesy of MetaStock Xenith

The weekly chart for FedEx is positive, with the stock above its key weekly moving average of $177.7. The momentum reading is projected to rise to 79.05 this week from a reading of 72.47 on June 12.

If gains are sustained the stock will likely become overbought a week from now.

Investors looking to buy FedEx should place a good 'til canceled limit order to purchase the stock if it drops to $146.78, which is a key level on technical charts until the end of this week.

Investors looking to book profits should place a good 'til canceled limit order to sell the stock if the stock rises to $184.90, which is a key level on technical charts until the end of this month.

Investors not familiar with technical analysis should begin with the notion that a price chart for a stock shows a road map of past price performance, which provides guidance for predicting future share price direction.

Here is how to read a daily chart: There are two moving averages to follow; the 50-day SMA is in blue, while the 200-day SMA is in green.

Here is how to read a weekly chart: This chart shows weekly price bars going back to the beginning of 2007 and thus includes the crash of 2008 and the bull market for stocks that began in March 2009.

The red line tracks the ups and downs of the key weekly moving average. The green line is the 200-week SMA.

The red line that oscillates along the bottom of the chart is the momentum reading on a scale of 0 to 100. A reading below 20 is oversold, and a reading above 80 is overbought.

A technically positive weekly chart occurs when a stock ends a week above its key weekly moving average with the momentum reading rising above 20.

A technically negative weekly chart occurs when a stock ends a week below its key weekly moving average with the momentum reading declining below 80.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

More from Opinion

AAP Exclusive: Cramer Says The President is No Longer on the Side of the Bulls

AAP Exclusive: Cramer Says The President is No Longer on the Side of the Bulls

Why It Makes Perfect Sense for Netflix and Amazon to Buy Up Movie Theaters

Why It Makes Perfect Sense for Netflix and Amazon to Buy Up Movie Theaters

2 More Reasons to Sell All Your Stocks and Run Away

2 More Reasons to Sell All Your Stocks and Run Away

Sean Hannity's Link to Trump Lawyer Raises Questions: Doug Kass Insider

Sean Hannity's Link to Trump Lawyer Raises Questions: Doug Kass Insider

Netflix Blowout Earnings Remind Investors of One Thing: This Company Is a Beast

Netflix Blowout Earnings Remind Investors of One Thing: This Company Is a Beast