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,
plunged 21.6% in afternoon trading Friday to a two-year low. The $44.25 drop in price took about 270 points off the Dow Jones Transportation Average DJT,
accounting for more than a third of the Dow’s 774-point move, or a 5.7% decline. Read more about FedEx earnings warning.
The transportation watch sector is on track to close below June’s low, which at the time marked the lowest close in 16 months.
The Dow carry selloff sends an important signal about the health of the broader stock market, as the index is considered by many to be 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.”
And 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 mid-August closing high. But since that high was well below the first rally high seen in March, which in turn was below the November 2021 record close, the index continued a pattern of lower lows and lower highs, which many Wall Street chart watchers say it 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 checked that box, but the Dow industrials, down 328 points, or 1.1%, on Friday afternoon were still about 745 points above their June 17 closing low of 29,888.78 .