Why FedEx’s Stock Drop Is So Bad For The Entire Stock Market

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By Tomi Kilgore

Dow Theory ‘sell’ signal halfway through as Dow Transportation falls below June low, but Dow Industrials still above

FedEx Corp. earnings warning cast a shadow over the broader stock market as a record drop in shares of the parcel delivery giant helped trigger half of a Dow Theory “sell” signal.

FedEx (FDX) shares fell 21.4% to a two-year closing low of $161.02. The $43.85 price drop shaved around 267 points off the Dow Jones transport average, accounting for more than a third of the Dow transport’s 685.39 points, down 5.1%, to 12,825, 34. .

The transportation sector tracker broke below its June 17 closing low of 12,868.60, which at the time marked the lowest close in 16 months.

The liquidation of Dow Transportation sent an important message about the health of the stock market as a whole, given that the index is considered by many to be a leading economic indicator. There’s a saying on Wall Street that Dow transportation companies “bring” buyers what Dow Jones Industrial Average companies “do”.

Basically, if transport does not take, the economy does not move and the stock market will fall.

Don’t Miss: Why FedEx’s earnings warning is such bad news for the U.S. economy, and FedEx stocks are on course for their worst week since the 1987 stock market crash.

The new Dow Transportation low follows a big 18.2% rebound from the June low to the mid-August closing high of 15,209.96. But as this high was well below the first recovery high seen in March of 16,718.54, which in turn was below the November 2021 record high close of 17,039.38, the index continued a trending low and lower highs, which many Wall Street chart watchers say. defines a bear market.

And perhaps more importantly, the lower low completes half of a “sell” signal, according to some followers of the century-old theory of Dow market analysis.

Also read: Dow Transports selloff may be a warning of something more than just a macro speed bump.

Read more: Don’t Say The Dow Theory Just Because It’s Over 100 Years Old.

As Mark Hulbert, MarketWatch contributor and founder of Hulbert Ratings LLC, has written, many agree that there are three key ingredients for a Dow Theory “sell” signal.

First, Dow Industrials and Dow Transportation must suffer a selloff after hitting new highs – Check. The respective June closing lows marked a 24.4% decline in Dow Transportation from its record close in November and an 18.8% decline in Dow Industrial from a record close in January.

Second, significant rallies from respective lows fail to reach previous highs – Check. Dow Transportation rebounded 18.2% from its June low, and Dow Industrials rebounded 14.3%, to hit mid-August highs, but those highs were well below previous highs respective.

And third, both indices fall below the dips referenced in the “First” ingredient – the indices are halfway there.

Dow Transportation ticked that box, but Dow Industrials, which fell 139.40 points, or 0.5%, to 30,822.42 on Friday, was still more than 900 points above the low. June 17 closing at 29,888.78.

-Tomi Kilgore

 

(END) Dow Jones Newswire

09-17-22 1020ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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