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FedEx, UPS Deliver Clues About Market Direction


Consider using any pullbacks to buy FedEx shares as a long-term core position in your equity portfolio.


Summary of Yesterday's Notable Technical Developments:

blew off good news from package delivery leader FedEx (FDX) and instead focused on government credit ratings here and abroad. Equities fell about 1% at the open and never recovered as the US dollar rallied and closed above short-term resistance levels.

The S&P closed at 1091 and is now in the lower half of its recent trading range of 1083 to 1119.

Bonds rallied again Tuesday as money rotated out of risk assets. The yield on the 10-year Treasury closed at 3.39%, placing it right in the middle of its two-month trading range of 3.2% to 3.58%.

Commodities got hit again as gold and crude oil continued to lead the way lower for the group in reaction to the stronger greenback (in gold's case) and the rotation out of risk assets (in crude's case). Oil and gold appear to be bearing the brunt of the effects from the dollar's recent strength.

As mentioned above, the US Dollar Index finished sharply higher as both it and the Japanese yen benefited from the risk trade being unwound.

The DXY closed above Monday's highs and now appears poised to challenge the next resistance level formed by the peaks in late October and early November.

Market Internals:

Click to enlarge

Critical market components and our quick take:

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Chart of the Day: UPS / FDX and the S&P 500 Large Cap Index

Yesterday morning package delivery giant FedEx delivered good news and a rosy forecast to the market.

Investors and traders responded in kind by taking FedEx shares up 2.7% on the day to a new 52-week high.

Yet, despite what appeared to be good news for the economy, the overall market was lower by 1% Tuesday.

So what should one make of this seeming contradiction? FedEx is a leading transportation company and it plays an integral role in business, government, and consumer activities. Shouldn't the market take its cue from such influential stocks? Surely good news from FedEx is good news for the economy and by proxy, the stock market?

The truth is I don't care whether the news is good or bad; I only care about the reaction to news and what the consequences may be for the technical picture of the securities in question and the market in general.

With that in mind, I thought today would be a good day to take a close look at whether stocks like UPS (UPS) and FedEx are great indicators for the broader market and, if so, what message these stocks are sending right now.

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  • Above is a monthly chart going back 15 years. UPS began trading publicly in 1999.

  • UPS bottomed approximately a year in advance of the S&P 500 (late 2001 versus late 2002 and early 2003). FedEx was basically treading water in 2001 as UPS bottomed, but it did have a small spike down as UPS bottomed -- so let's say they both bottomed simultaneously well in advance of the S&P.

  • As for topping, UPS clearly did so in late 2004 and then again in the spring of 2006 -- once again well in advance of the S&P's top in the fall of 2007. FedEx didn't top out in 2004 like UPS. However, it did top out in conjunction with the lower peak set by UPS in 2006 -- again, well ahead of the S&P.

  • Finally, UPS, FedEx, and the S&P bottomed simultaneously in March of 2009. I suggest this was due to the wholesale liquidation of equities, regardless of merit. The climactic sell-off was the result of a financial crisis -- a rather unique set of circumstances. Once the government plugged the gaping hole, all stocks rallied together. Indiscriminate buying didn't allow much time for leaders to emerge in this instance.

Click to enlarge

  • Now, with the financial system pulled back from the abyss, the focus clearly has turned to the health of the global economy. I specifically use the term "global" here because both UPS and FedEx are heavily engaged in global commerce -- so they should, in theory, resume their directional leadership capabilities for not only the US stock market, but also for the global equity markets.

  • Turning to the daily charts of UPS and FedEx for the last 16 months or so, it's evident that UPS has languished just under key resistance levels in the upper $50s. On the other hand, FedEx is on fire to the upside. It is not only trading above its uptrend line (unlike UPS), it's trading above multiple uptrend lines.

  • I'm concerned about UPS having such a tough time getting back above the broken trend line and hitting new highs (actually, that's the same concern I have for the market).

  • I'm not so much concerned as I am aware that FedEx is getting overbought in the short-term and is facing long-term resistance in the $92 to $97 area.

  • What are these two stocks -- with very different short-term charts -- signaling about the markets and the economy? The recent struggles of UPS may suggest a slower growth rate for the US economy and markets than abroad, as UPS is more levered to the domestic economy. FedEx, with a very strong international business, may be signaling through its strong share price that some overseas economies are on a stronger footing and may have a better chance of a more robust and sustainable economic recovery.

Strategy: Use any pullbacks to buy FedEx shares as a long-term core position in your equity portfolio. UPS and FedEx shares provide some clues as to where the broader markets (and the global economies) are headed. ThirdWave forecasts rather limited upside for US stocks until we see signs of real, sustainable organic economic growth here. Better growth opportunities are likely abroad.

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No positions in stocks mentioned.

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