FedEx (FDX) at Hidden Resistance Ahead of Earnings

FedEx Corporation (FDX) has transformed from transportation industry laggard to leader in 2020, exiting a brutal two-year bear market with a 250%-plus rally to the highest high since December 2018. The shipping giant has Amazon.com, Inc. (AMZN) to thank for the turnaround, as the e-commerce giant deferred a broad-based in-house delivery initiative to focus on the demands of higher market share as a result of the COVID-19 pandemic.

FedEx stock's relative strength has soared since that news, lifting above transport components already trading at all-time highs. Not surprisingly, United Parcel Service, Inc. (UPS) has also posted out-sized returns, with both companies taking back some control of an industry coming under the sizable influence of the e-commerce juggernaut. Even so, FedEx stock has now entered a high-odds reversal zone, adding risk ahead of Tuesday's post-market earnings report.

Analysts expect the $63.6 billion company to post earnings per share (EPS) of $2.69 on $17.56 billion in fiscal first quarter 2021 revenue. The stock rose a healthy 16.44% after FedEx beat fourth quarter top- and bottom-line estimates in June, underpinned by a wave of upgrades and raised price targets. It has added more than 75 points since that time, reaching an extremely overbought technical level that has triggered five reversals in the past 16 years.

Wall Street consensus continued to improve during the quarter, now standing at a "Moderate Buy" rating based upon 16 "Buy" and 7 "Hold" recommendations. No analysts are recommending that shareholders sell their positions at this time. Price targets currently range from a low of just $100 to a Street-high $300, while the stock opened Monday's session about $23 above the median $218 target. This placement suggests that FedEx stock is fully valued at this time.

FedEx stock broke out above the 2007 high at $121.42 in the fourth quarter of 2013, entering a powerful advance that topped out in the $180s at the end of 2015. It sold off to a two-year low in January 2016 and turned higher, breaking out to a new high after the presidential election. This rally impulse posted an all-time high at $274.66 in January 2018, at the same time that President Trump fired the first shot in the trade war with China.

The stock carved a descending triangle top into October and broke support in the $220s, entering a persistent downtrend that posted a long string of lower highs and lower lows into March 2020's seven-year low at $88.69. It completed a round trip into the February 2020 high in July and broke out, confirming new support at the 200-day exponential moving average (EMA) at the same time. Momentum traders have taken charge since that time, lifting the stock to a 20-month high.  

The uptick has just crossed the .786 Fibonacci selloff retracement at the same time the monthly stochastic oscillator has posted the most extreme overbought reading in six years. Taken together, the odds for a reversal and intermediate correction have risen into the "likely" category, increasing risk ahead of this week's confessional. Sidelined investors can look forward to a lower-risk buying opportunity if bears take charge for a few months, with the 200-day EMA rising through the $170s providing excellent support.

FedEx stock is overbought and at resistance after entering a new uptrend, and it could enter an intermediate correction in coming weeks.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.