We looked at XPO Logistics Inc. (XPO) a month ago, (https://realmoney.thestreet.com/articles/05/14/2018/xpo-logistics-moving-averages-favor-more-upside), commenting that, "A bar chart of XPO suggests we are seeing either a continuation pattern or a reversal pattern. The Point and Figure chart is pointing to higher prices. The moving averages are pointing up so I would trade in that direction. Buyers of XPO should risk below $104 looking for gains to the $125-$145 area." Our stop suggestion has been fine the past month but prices have not followed through strongly on the upside. Let's check the position of the indicators again.
In this updated daily bar chart of XPO, below, we can see that prices are still above the rising 50-day moving average line. The level of volume has been uneventful except for a brief spike at the beginning of June. The On-Balance-Volume (OBV) line dipped in early June and has recovered giving us a mixed signal on who is being more aggressive - sellers or buyers? In the bottom panel we can see that the price momentum study has slowed from May to June giving us a bearish divergence when compared to the higher prices from May to June.
In this weekly bar chart of XPO, below, we can see a mixed collection of signals. Prices are above the rising 40-week moving average line. The weekly OBV line in the middle panel has been moving sideways the past few weeks giving us a small bearish divergence. In the lower panel is the 12-week momentum study which shows lower highs from January to now. This too is a bearish divergence when compared to the prices making higher highs. A bullish or bearish divergence is not a clear buy or sell signal like other indicators as it is just foreshadowing a possible change in trend.
In this Point and Figure chart of XPO, below, we can see an upside price target of $135. A rally to $116.52 will improve this chart but a decline below $107.61 will probably weaken it.
Bottom line: With price momentum slowing on both the daily scale and the weekly scale, traders should be more alert for a possible downside reversal. It could well be shallow and short-lived but we shouldn't become complacent about our long positions.