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FedEx could fall another 7% before stabilizing, says technical analyst

VIDEO3:1903:19
FedEx could fall another 7% before stabilizing, says technical analyst

More pain ahead?

That could be the fate of FedEx as the stock sits near lows not seen since March 2016, says JC O'Hara, chief market technician at MKM Partners.

The stock is down more than 13% year to date and over 39% in the last 12 months. Shares were volatile Wednesday following a downgrade from Bernstein to market perform, in which analysts called the shipping play "dead money" for the near term.

"If you look at the chart over the last year, it's been in a pretty defined downtrend," O'Hara said Wednesday on CNBC's "Trading Nation." "What I get pretty bearish about [is] if I take a step back and I look at a longer, weekly chart going back to 2013, … the viewers can clearly see there is a major top pattern that has formed."

The pattern, a head-and-shoulders formation, is a bearish signal that a stock's uptrend is nearing an end.

"That top pattern ... is a distributive pattern, and it has bearish implications," O'Hara said. "To me, I don't see real support kicking in until [$]130."

That would represent a nearly 7% decline from Wednesday's closing price of $139.25 and could provide new support for FedEx now that it's broken below its relatively longstanding floor at $150, O'Hara said.

"I would avoid this stock until at least we see some stabilization closer to the $130 level," he said.

Michael Bapis, managing director of Vios Advisors at Rockefeller Capital Management, said that while FedEx may look cheap on a relative basis, it likely isn't.

"Rail traffic is down. Shipping traffic's down, which, in such a high-fixed-cost business, … really has an effect on margins," Bapis said in the same "Trading Nation" interview.

"The other effect that really is driving the downturn is the Amazon effect," he said. "They cut ties with Amazon in August and I don't think they've ever recovered."

Bapis, who has two decades of experience in money management and private banking, noted that FedEx's year-over-year earnings estimates for its fiscal first quarter are down more than 30%.

"While it does look cheap, I'm not too convinced yet. I want to see how this holiday season shakes out and see how they can recover not being a partner with Amazon," he said. "We know Amazon's trying to take over the world and everything, so let's see how it falls. Let's see what happens. We're not jumping in. We're not saying sell all, but I'm not convinced it's a buy right here."

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