Technical Analysis Lesson - Bad Action in FedEx
Some Things Can't Be Quantified
Shares of FedEx Corporation (NYSE:FDX) are trading lower Tuesday. The stock is continuing the downtrend that began on December 19 when after the close the company announced earnings and said it plans to separate its Freight Unit.
The chart of FedEx shows some classic examples of what traders refer to as ‘bad action’.
Action is something that can’t be quantified. For example, if a company beats earnings and the stock moves down, it would be considered bad action. If a company misses earnings and the stock goes up it could be considered good action.
On December 20, FedEx opened about $20.00 higher than the previous day’s close. Traders and investors thought the news and earnings were bullish.
But by the close, the sellers overpowered the buyers. The shares reversed and gave back all of their gains. This was weak action that showed the bears were in charge.
As you can see on the chart, FedEx broke the support that was at the $275.00 level. This was another example of bad action.
There tends to be support at prices that had been resistance. This happens because some people who sold at the resistance regretted doing so when the price eventually moved higher. They decide that if they can, they will buy their shares back at the same price they were sold for.
So, when the stock fell back to $275.00, they placed buy orders. This concentration of buy orders caused support to form.
But the support was only intact for 3 days. There were more sell orders than buy orders and this made the support break and resulted in another move lower.
The fact that there has been no rebound or bounce back is a third sign of bad action.
Typically, if a stock makes a large move lower it is followed by some type of rebound or bounce, even though it may be small. It this doesn’t happen; it shows that buyers are not entering the market and the sellers are still in charge.
There is a good chance FedEx continues to head lower.
