The stock: FedEx Corp. (FDX-NYSE) Monday's close:
The trend: Although the stock market advanced last week, the price trend distribution of North American stocks continues to reflect uncertainty about economic growth in the quarters ahead. The burgeoning number of stocks changing from a Stock Trends Bullish category to Stock Trends Bearish is pervasive enough to make an immediate recovery in broad equity prices difficult, perhaps unlikely. For the first time since early in the second quarter of 2009 the number of stocks in a bearish trend outnumbers those in bullish ones.
Currently, 37 per cent of North American equities sport a Stock Trends Bearish trend indicator - defined by the relationship between a stock's current price and its 13-week and 40-week moving averages - compared with 35 per cent still in a bullish trend category. Weighing in the balance is the 24 per cent of stocks in a Weak Bullish category - stocks whose short-term trends have faltered, but remain in a positive longer-term trend situation. How these stocks perform in the coming weeks will tip the balance - giving investors a verdict on market performance for the rest of the year.
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The surge in newly Stock Trends Bearish stocks last week on the New York Stock Exchange, even amid a more charmed result - the S&P 500 index advanced 5 per cent - puts the bearish drift in context. Almost 200 NYSE stocks turned from Stock Trends Weak Bullish to Stock Trends Bearish last week, another 125 or so appear certain to join the crowd this week - including the likes of General Electric and Bank of America. Some of these newly bearish stocks tell us as much about the forest as the falling trees, reaffirming tough times ahead for investors.
The trade: Among the current group of newly Stock Trends Bearish stocks is FedEx Corp. Oft considered an important bellwether stock of the transport sector, shares of this global air freight company have been losing altitude for the last three months, underperforming the broad U.S. stock market by 10 per cent over the period. This underperformance stands in contrast with the Dow Jones transportation index, which has dropped 8 per cent in the last 13 weeks compared to the 19-per-cent slide in FedEx shares. Even shares of competitor United Parcel Service are managing to stay above the market performance, putting FedEx's poor showing in the spotlight.
Three years ago, FedEx shares moved south in advance of the broader market decline, underperforming the S&P 500 index in the second quarter of 2007 and turning Stock Trends Bearish almost seven months before the benchmark index also turned Stock Trends Bearish. FedEx is again ushering investors to the door, although both the S&P 500 and the Dow Industrial indexes are concurrently shifting to a Stock Trends Bearish indicator with FedEx this time.
The upside: If the share price does not hold above $70, another 10-per-cent haircut is at risk for shareholders - a 30-per-cent slide if the much feared double-dip recession shows signs of rearing its head. More sophisticated shareholders can take this opportunity to earn premium income writing options contracts to help mitigate downside risk, but holding cash is not such a bad way to weather the volatility ahead.
The downside: Some analysts have upgraded their rating of FedEx, indicating an improved valuation as impetus to regain the share-price peak in mid-April near $100. The stock's chart does show potential for price support at the current level, an area for staging a recovery back above $83, the 40-week average price. A deflating broad stock market makes this unlikely.
Skot Kortje has been analyzing stock market trends for 15 years using trend analysis. For more, go to stocktrends.ca.