It's been said that markets climb a wall of worry. After the markets closed on Thursday, investors received news that should create significant worry.
How will the markets react? Let's go to the charts to find out.
On Sept. 9, I indicated that there were two major areas of resistance facing the market, represented here by the S&P 500. The first obstacle was the neckline of a recent head and shoulders (black dotted line). Just beyond that was the index's 200-day moving average (red line, point B).
I gave the large-cap index a decent chance of beating that first obstacle, and said it would have greater difficulty dealing with the latter. We'll never know, because the S&P 500 dropped like a brick after failing to scale that first hurdle (point A). The catalyst for the plunge was Tuesday's consumer price index report, which showed inflation rising at an 8.3% clip vs. last year.
Charts via TradeStation
Just like that, we're testing 3900 on the S&P 500 again. If it breaks, look for a retest of the 3700 area, which represents 2022's year-to-date low.
Worse, the S&P 500 was already looking soft before FedEx Corp. (FDX) drastically reduced earnings estimates on Thursday afternoon. FedEx cut its fiscal second quarter earnings per share estimate in half, from $5.48 to "$2.65 or greater." The company completely pulled its guidance for 2023.
The stock plunged 10% in after-hours trading, but the warning signs were already on FedEx's chart.
One warning took the form of a descending triangle (dotted lines). That pattern suggests FedEx could fall to the $160 area.
The other can be found in FedEx's 50-day (blue) and 200-day (red) moving averages, both of which are above the stock's price and trending lower. Interestingly, FedEx has been in a downtrend for over a year, topping a full six months before the major market indexes.
I'm not a holder of FedEx, or its rival UPS (UPS) , which also sold off after Thursday's close. I'm more concerned about what the FedEx warning means for the transportation and delivery industry, and for the economy as a whole.
For example, I'm selling J.B. Hunt (JBHT) , the largest publicly owned U.S. trucking service, which I bought back in March. This position wasn't working anyway, so I'd rather cut it loose now with a 17% loss than hold on and risk a further decline.
If there is a silver lining to the FedEx news, a slowdown in delivery services could cause the Fed to slow its pace as well on fighting inflation. The FedEx news likely isn't company specific, and should be interpreted as a sign that the broader economy is losing steam.