Tim Bovee, Private Trader: FDX: An aging trend

Tuesday, October 28, 2014

FDX: An aging trend

Fedex Inc. (FDX), like much of the market, has been on the rise since 2012, and like much of the market, its uptrend is wrinkled and gray haired, tottering down the street with a cane and a genial smile and a cackling "Howdy do" for all who pass.

The Chart

Elliott wave analysis shows FDX to be in the 3rd wave of its rise from the 2009 Great Recession low. I've labeled that wave as 3 {+2}. Internally, wave 3 {+2} is in the 5th and final wave of a trend for three degrees down, from wave 5 {+1} down to 5 {-1}.

The end of wave 5 {-1}, which began Oct. 15, will signal the beginning of a downtrend that will take back a portion of the rise since June 2012, which has more than doubled the price.

Click on chart to enlarge.

FDX 10 years weekly bars (left), 9 months daily bars (right)

Not all counter-trend corrections are the same, of course. A Flat -- a shallow correction in the Elliott terminology -- is not atypical of a 4th wave, and it would do far less damage than a steep Zig-Zag correction, which could easily take back half or two-thirds or even more of the price gains since 2012.

And although 4th waves tend to be Flats, Zig-Zags aren't unheard of, and I cannot assume either one at this point.

Good stock. Good company. Fedex, headquartered in Memphis, Tennessee, is on my list of innovators as a result of it having won positive mention in the excellent book Firms of Endearment by Rajendra S. Sisodia, Jagdish N. Sheth and David B. Wolfe.

Innovative companies are interesting and can make good longer-term plays. But they don't necessarily make money. And they aren't immune from market forces.

In other words, even uptrends on the charts of innovators have their day and end, and the ensuing downtrend can devastate a position managed by a trader who is less than nimble, and sometimes be so swift that even Jack, of candlestick fame, couldn't get out in time.

At this point I'm cutting the analysis short. I know enough to make a decision.

Decision for My Account

I don't intend to open a bull position in FDX under my shorter-term rules. The series of 5th waves sitting hard atop the current trend and the potential magnitude of the coming wave 4 {+3} correction make the risk greater than I'm willing to assume.

-- Tim Bovee, Portland, Oregon, Oct. 28, 2014

References

My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

From time to time I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading.

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

See my post "Chart Analysis: Nomenclature" for an explanation of my method for labeling waves on the chart.

By preference I place my shorter-term trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.