Fedex's Hourly Head And Shoulders Top

08/20/04 02:04:06 PM

by David Penn

What do you do when a pattern absolutely, positively has to be a reversal?

Security: FDX
Position: N/A

Is FedEx a shipping company, a verb, a stock tempting fate with recent price action that comes perilously close to resembling a head and shoulders top -- or all of the above?

I started paying more attention to hourly charts after reading that many pre-WWII technical analysts used to keep track of the hour-to-hour changes in the Averages as a way of maintaining a finger on the pulse of the markets. As important as daily charts are for spotting swing trading set-ups that might last anywhere from one to five days, hourly charts can truly help traders anticipate those daily-based opportunities.

This head and shoulders chart in the 60-minute FDX suggests that the shipper still has room to go on the downside.

Graphic provided by: Prophet Financial Systems, Inc.

Hourly charts also let swing traders play "position trader," utilizing techniques like 1-2-3 trend reversals and 2B top and bottom tests to help pinpoint optimal entries for short-term trading.

But back to FedEx, while many other stocks were breaking down over the summer of 2004, FedEx remained resilient. As just one example, consider that shares of FedEx are up nearly 15% for the year as of this writing, while all the major averages are down. Nevertheless, FedEx has been putting in topping action since late June/early July and the lower peak in late July seems to have been the last advance of this particular bull move. This "right shoulder" was completed in a few blisteringly bearish sessions, sending the price of FDX through neckline support at about 80.

Given a formation size of about five points (roughly 83.5 to 78.5) and neckline support at 80, traders can look forward to an initial decline to about 73. It is at these levels also where some support begins to appear in the form of the June lows. Currently bouncing after initially breaking free from the pattern, shares of FDX might actually be providing another entry point for short-oriented traders.

David Penn

Technical Writer for Technical Analysis of STOCKS & COMMODITIES magazine, Working-Money.com, and Traders.com Advantage.

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HEAD & SHOULDERS

Fedex's Hourly Head And Shoulders Top

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