Bulkowski's FedEx (FDX 3) Trading Quiz

What chart patterns can you find? Look for the following (if you find others, great!): 2 double bottoms, big W, flag, 2 complex head-and-shoulders bottoms.

The complex head-and-shoulders bottom (chart center) has a dual head (the Adam & Adam valleys) with nearby shoulders LS and RS. The red line on the Adam & Eve double bottom (far right) shows the confirmation price. If you placed a buy stop at that price, you would have bought in at the breakout. If you waited for price to close above the confirmation point, you would have remained out of the trade for at least another day because price closed below the red line on the day it gapped upward (meaning the pattern was NOT confirmed). The next day (the last one on the chart) is the first day price closed above the confirmation point. That would have been the buy signal and you would place a buy order the following day.

Answer 1 (buy?): Buy the stock because it has an upward breakout. However, the risk is increased because price has climbed far from the breakout price. If it throws back you could be cashed out and suffer a loss even though the chances are 69% that price will resume the upward move. If this were my trade, I would skip it or wait for a throwback because I'm too late getting in.

Answer 2 (target?): Measure the height of the chart pattern and add it to the confirmation price to get a target of 58.14, which price reaches 69% of the time.

Answer 3 (stop?): Volatility is $1.89 so a stop no closer than 55.18 - 1.89 = 53.29 would keep you away from being stopped out on normal price fluctuations. That's measured from the low on the breakout day (2nd bar touching or above the red line) and it's slightly above the confirmation price (red line on the chart). Since price is on a straight-line run, I would use a 62% Fib retrace as the stop point. That would place the stop at 51.50 which is 62% of the rise from the Eve bottom. That would put a potential loss at 9% as measured from the most recent closing price.

I show the confirmation price as a red line, the target as the blue line, and show that price did not throwback. Thus, I would not have bought this stock unless I had a buy stop at the breakout price. Anyway, price has formed a small ascending triangle (upper right on chart).

Question: If you owned this stock, would you sell or hold on for additional gains?

Answer: Since the breakout is downward from the triangle, that's a sell signal. I would sell. However, if you were to short this stock, how far would it drop? Measure the height of the triangle from the top trendline (65.35) to the lowest valley (62) for a height of 3.35. Project this downward from the breakout price (63.45) to get a target of 60.10. That's a potential decline of 5%. Price reaches the target 44% of the time in a bull market. Is a 5% decline worth selling your stock? Is it worth shorting the stock?

The stock dropped to a price of 59.01, beating the 60.10 price target handily. Nevertheless, that's a decline of just 7% and that's if you traded it perfectly. My belief is that if you sold this stock short, you would have taken a loss. If you sold a long holding, you would have watched from the sidelines as price climbed to a high of 78.05 by November.