The stock market gave back some of its midday gains late in the afternoon yesterday...after APPL slipped well off of its highs for the day and the dollar bounced back into positive territory for the day. However the stock market still finished the day well into positive territory, so the reversal was not a major one by any means. In other words, the “Fed creep” did work again...as the market rallied the day before their regularly scheduled press conference.
We would note, however, that the stock market has dropped on the day following the Fed’s announcement/press conference after each of the past four meetings. One of them...in June...saw the stock market drop over 5% on the Thursday after the meeting. In other words, what the market hears from the Fed is not always as bullish as it has been in past years. Therefore, there is no assurance that the stock market is going to rally a lot further this week.
In other words, we’re a long way from determining whether the pull-back in the stock market that began about two weeks ago...has already come to an end...and that we’ll go back to the steady upward trajectory that we saw over the summer. As we all know, no market moves in a straight line, so the bounce of the past few days could merely be a “dead cat” bounce...and we’ll resume the decline rather quickly. That said, we think we’ll get an answer to the question of which way things will break over the next 3-4 trading days...once we get past today’s Fed announcement.
The futures are trading higher this morning in pre-market trading, but we’d be surprised if it moved in major way until after Mr. Powell’s press conference. With this in mind, we thought we’d focus on the chart of one stock this morning...because it has been a great stock since March, but is getting quite overbought.
The stock we’re talking about is Federal Express (FDX). They reported FABULOUS earnings last night...as both earnings and revenues easily beat the consensus estimates. This has the stock trading 8%-9% higher in pre-market trading...and within shouting distance of its 2018 all-time highs. The rally in FDX has been phenomenal since the March lows. Assuming it does indeed open 8%-9% higher, it will stand 184% above its March lows...more than 30% above its February highs...and will give it a 70% YTD gain!
This kind of rally is great, but we’d also note that the stock has rallied over 50% over just the past 4.5 weeks!!! In other words, the most recent move has been a parabolic one...and thus FDX has become quite overbought. It’s weekly RSI chart had reached 78.7 at last night’s close...before the earnings were announced...so it will be even higher once it opens this morning. That should take it just above 80 (or at least very close to that level)...and it has only moved above 80 three other times in its history (early 2018, 1997 and 1983). In 2018 and 1997, it was followed by significant declines...and in 1983, it traded sideway for several months.
Therefore, it looks like we’re getting to a level where FDX is going to have a tough time rallying a lot further over the near-term. This does not mean that it will roll-over and fall out of bed. It didn’t do that in 1983...so we’re NOT calling for a major “sell the news” reaction in the stock right here. However, we DO think that investors need to be careful about chasing FDX up at these levels on a short-term basis.
No, the weekly RSI chart on FDX has not reached the mid-to-high 80s like several of the mega-cap tech stocks did recently before they rolled-over, but FDX is not a tech stock...and its weekly RSI chart has never moved above 81. Therefore, we believe that the odds that it will rally a lot more from where it opens for trading today are quite low right now. With this in mind, long-term investors should look to buy this stock on weakness, rather than chase it...and short-term traders should consider taking profits up at these levels. (Chart below.)
We’ll finish today with a comment from the world of golf. No, we’re not talking about this year’s U.S. Open...which begins tomorrow. We’re talking about last week’s tournament...which was won by Stewart Cink. I met Mr. Cink briefly several years ago...and he could not have been a nicer guy. (He was particularly great with my kids...who were quite young at the time.) Therefore, when I read five years ago that he was going to take some serious time-off from the PGA Tour to care for his wife who was diagnosed with stage 4 breast cancer, it didn’t surprise me at all......To see him holding the trophy on Sunday...with his son (who caddied for him during the tournament)...and his wife (who has been in remission for five years)...was about as good as it gets.
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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
Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.