FedEx Corp.’s earnings warning has weighed on the broader stock market, as a record drop in the package delivery giant’s stock helped trigger the Dow Theory’s half “sell” signal.
FedEx shares of FDX,
fell 21.4% to a two-year closing low of $161.02. The $43.85 price drop was about 267 points off the Dow Jones Transportation Average DJT,
accounting for more than a third of the Dow’s move of 685.39 points, or 5.1 percent, to 12,825.34. Read more about FedEx earnings warning.
The transportation sector tracker broke below its June 17 closing low of 12,868.60, which at the time marked its lowest close in 16 months.
The Dow carry selloff sent an important signal about the health of the broader stock market, as the index is viewed by many as a leading economic indicator. There’s a saying on Wall Street that the Dow carriers “get” from buyers what the Dow Jones Industrial Average DJIA,
“I make, I do.”
Basically, if transportation doesn’t work, the economy doesn’t move and the stock market will fall.
Dont miss: Why FedEx’s earnings warning is such bad news for the US economy, and FedEx shares are on track for their worst week since the 1987 stock market crash.
The new Dow transportation low follows a big 18.2% rally from the June low to the closing high of 15,209.96 in mid-August. But since that high was well below the first rally high seen in March of 16,718.54, which in turn was lower than the November 2021 record close of 17,039.38, the index continued a pattern of lower lows and lower highs, as many Wall Street chart watchers say. defines a bear market.
And perhaps most importantly, the lower low completes half of the “sell” signal, according to some followers of the age-old Dow Theory market analysis.
Read also: The sell-off in the Dow bearish may be warning of more than just a macro speed bump.
read more: Don’t dismiss the Dow Theory just because it’s over 100 years old.
As Mark Hulbert, MarketWatch contributor and founder of Hulbert Ratings LLC, wrote, many agree there are three key ingredients to a Dow Theory “sell” signal.
First, the Dow Industrials and Dow Transports are set to experience significant declines after hitting new highs — Check. June’s respective closing lows marked a 24.4% drop in the Dow transports from a record close in November and an 18.8% drop in the Dow industrials from a record close in January.
Second, significant rallies from corresponding lows fail to reach previous highs — Check. The Dow transports rebounded 18.2% from the June low and the Dow industrials rebounded 14.3% to mid-August highs, but those highs were well below their respective previous highs.
And third, both indicators fall below the lows listed in the “First” component – the indicators are halfway there.
Dow carries have picked up that box, but the Dow industrials, which fell 139.40 points, or 0.5%, to 30,822.42 on Friday, was still more than 900 points above its June 17 closing low at 29,888.78.