FedEx (FDX): Why the Rally Everyone Expected Hasn't Come
The time to prepare for FDX turbulence was four months ago. Easier said than done, but doable -- here's how
by Nico Isaac
Updated: October 06, 2021
It's easy to lose track of the ever-increasing "nightmare scenarios" that have afflicted mankind over last year and a half. At some point, they all blend together. But...
According to a September 11 Business Insider story, there's yet another one to add to the list; namely: the increased delay in delivered mail. It's become a pandemic pastime: You go online to track a shipment, see its ETA date only for that date to come and go with no package. Then, you re-enter the tracking number to see the purgatorial, "Still in Transit" message.
As the BI article observes: "Retailers can only stand persistent delays for so long."
The same goes for investors in Big Board listed FedEx stock, ticker symbol FDX. Many have been waiting and waiting and waiting for the uptrend of 2020 to be "re-delivered," only to endure persistent declines in the meantime.
To wit: On October 4, FDX tumbled to its lowest level in more than a year, sinking into bear market territory.
Added The Street on October 4,
"Analysts who loved it last May near $320 were swearing at it as they sold in the $228 - $230 range. I didn't hear one money manager on CNBC that was enthusiastic about buying, or adding to the stock even as it set a new 12-month low."
I don't doubt the unexpected selloff in FDX prompted a steady stream of bleep-worthy expletives from mainstream analysts who "loved" the stock back in April and May near $320. How much did they love it, you may ask?
Well, these headlines from the time show how Fed-over-heels they were:
- "FedEx Stock Will Resume Rising After Epic 2020" (April 13 Barron's)
- "FedEx Shares Surge on Ratings Upgrade" (May 3 Barron's)
- "FedEx Stock: Further Upside Ahead" (May 7 Seeking Alpha)
With super-bullish expectations like that, why did FDX fall, then?
The answer is: Those expectations were based on market "fundamentals." The problem with that approach is that usually, it simply projects recent trends into the future. "It was sunny yesterday, so it'll be sunny tomorrow -- unless a cloud appears."
Conversely, the Elliott wave model of market analysis anticipates trend changes. The method tracks investor psychology, which unfolds as objective patterns directly on price charts.
It is from the latter's perspective that our June 17 Trader's Classroom warned subscribers of a major trend change in FDX. There, Trader's Classroom editor Jeffrey Kennedy identified a textbook Elliott wave pattern on FDX's price chart -- a five-wave impulse, pictured here in its idealized form:
The actual five-wave impulse, shown on Jeffrey's chart, was looking finished, prompting this bearish appraisal from Jeff:
"If I'm teaching in front of a classroom and I want to show my students what a nice, five-wave move looks like, this is a great example."
As the idealized diagram above suggests, once a five-wave move is complete, it is then followed by a three-wave correction in the opposite direction. Thus, Jeffrey's forecast for FDX was bearish:
"That being the case then the risk is to the downside.
"The maturity of this move from the March low is valuable information. I want to be aware of that because if I've been long FedEx, with this latest knowledge, I want to manage risk appropriately. Maybe I want to start taking some off. Maybe I want to raise protective stops.
"What can we look for? At minimum, a three wave decline that pushes us down to $225... or even lower."
From there, FDX took to the downside right in line with Jeffrey's forecast. Then, in the September 16 Trader's Classroom, Jeffrey revisited FDX to address whether the stock's decline was over. It wasn't:
"We talked about this in June because we have five waves up and done, so our focus was down. Since then, we sold off about $50 bucks but I think we have more to go to the downside."
Again, that was exactly what transpired as prices fell to a one-year nadir on October 4.
We can't do anything about those mailed packages arriving long after their expected delivery date. We can, however, offer traders a method to help them arrive early to major trend changes.
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