Several months ago, when everyone was so busy saying the bottom is in, we looked at a chart of FedEx (FDX) . I picked FDX, because it was one of the few stocks that was still holding its February low. At the time, I explained how there was no way to know if this would turn out to be a base or a way station.
At the time, I noted that there were several components to base building. One was the stock had to stop going down, finding buyers at a similar or higher level on each trip lower. Another component was that it had to make higher highs, showing that there was buying interest at higher prices, not just when the stock was down.
The chart of FDX below does not include the after-hours action, but I have put a red dot where it traded on Thursday after its pre-announcement. Clearly, this is not even a potential base anymore, but a bigger top. I realize charts are a bit of voodoo to some, and I will admit that when we measure targets for stocks, I am unable to explain why it works, yet it does, so call it voodoo.
If we take the high of the pattern and subtract the low, we have two choices here. We can take the high back in 2021 (call it $300) and subtract the low at $200 to get $100. Then we would subtract $100 from the breakdown ($200) to get a target of $100. Right now that seems extreme, because it would be taking the stock back to the Covid lows.
So, let's opt to do the same measured target on the pattern that has transpired since FDX gapped down from the top in September last year. Here we take $260 and subtract $200 to get $60. And $60 from $200 gets us $140, which is where that gap up from 2020 comes in.
Is suspect the first line that holds is the support in that $160 area.
But we're not doing this for a discussion of FDX-only. We're doing this because it all comes back to base building. How many bases do you see on charts vs. tops?
Here's another example: Is Microsoft (MSFT) building a base or a top? I think it's a top, but at the same time, I know that the stock is down 15% in a straight line in a month and no one is even talking about it. Oh, sure, they talk about Meta and of course beloved Apple (AAPL) but not Mr. Softee.
Now if we move away from the mega-cap tech, names Thursday saw small(er)-tech names rally. Thursday saw banks rally. Even biotechs had a good day. That means the number of stocks making new lows has still not expanded. It also means breadth is still higher than it was the last time the S&P got down to 3900.
I feel pretty certain the FedEx news will increase the bearishness that is already abundant. The Daily Sentiment Index (DSI) is still hovering in the low teens for the S&P and Nasdaq. Surely if the index movers take the indexes down, the DSI will get to single digits. We've already quieted down "the low is in" camp. Just for the record, I won't know the low is in until well after the fact.
