Whether FDX can break meaningfully above its 200 day moving average or not should be very important for the stock (and UPS as well).
Ten days ago, we highlighted how UPS had become very oversold…and thus had become ripe for a short-term bounce. Well, this was indeed followed by a 6% bounce in the stock. However, it has rolled back over again…and it retested its recent intraday lows midday yesterday. It held that level (of $101.60), but it is still within spitting distance of those lows. Therefore, if it breaks below that level any time soon, it’s going to leave UPS vulnerable to a decline down towards is 2019 lows (below $95).
It is interesting to note, however, that this poor action UPS is taking place at the same time that FDX is rallying…and testing a vitally important resistance line. That’s right, FDX is testing its 200 DMA once again. This is the 5th time since just September that FDX has tested its 200 DMA…and it held each of the previous four times. Therefore, if the stock can finally break above its 200 DMA in any meaningful way, it’s going to be very bullish for FDX on a technical basis. That, in turn, should help UPS hold its key support level going forward…so we don’t want to throw-in the towel on UPS just yet!
Don’t get us wrong, the correlation between FDX and UPS can (and does) break-down for brief periods from time to time, but the “directional correlation” tends to remain very strong…and it has indeed continued to be strong over the last year. In other words, sometimes one stock rises or falls a lot faster than the other one, but they rarely move in different directions. Therefore, if FDX can breakout to the upside, we would expect UPS to rally nicely….even if it doesn’t rally as forcefully as FDX. The problem is that if FDX fails to breakout…and instead rolls-over once again, that “failure” is going to be quite negative for UPS…given that it’s now testing a key support level.
Therefore, the next few days should be important for both of these two stocks. FDX should be the one that provides the catalyst for both names. Therefore, we’ll be watching to see if it can break above its 200 DMA in any significant way. Whether it does or not should be the catalyst for a substantial move in both stocks.
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Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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