UPS Bear Flag

The transportation stocks have lifted off the August lows along with the market, which led me to have a closer look at the charts of package and freight delivery company United Parcel Services (NYSE:UPS).  From a fundamentals point of view the firm’s share repurchase activities and solid cash flow are attractive attributes, but what do the charts say?    

Sector: Industrials

Industry: Transportation

The weekly chart looking back to early 2009 shows the nice upward trending channel (parallel white lines) in which the stock has been moving up for the better part of the past twenty four months.  In early August however as stocks tanked lower United Parcel Services (NYSE:UPS) was not spared any exceptions and also broke below support and out of the channel.  Given the magnitude of this technical break a countertrend reaction such as we’ve seen over the past two weeks is to be expected.  Specifically the stock needs to retest the point (or somewhere nearby) where it broke out of the trading channel.  

Flipping over to the daily chart we note a very much similar pattern as is currently on display in the S&P 500, it’s called a bear flag (white parallel lines).  Technical analysis 101 of course dictates the path of least resistance of such a bear flag pattern is in the prevailing trend, in this case to the downside.  Given the break of the weekly chart above as well as resistance offered by its 50 day simple moving average and higher up by its 200 day simple moving average lower levels are certainly thinkable.  A signal to short the stock would occur on a clear daily break out of the bear flag to the down side.  A possible profit target in that case would be near $57.  Alternatively, and given the current volatile environment very possible scenario would be a break out of the bear flag to the upside.  Statistically speaking that would be a lower probability setup but none the less should it occur a buy signal would trigger on a daily close above the bear flag.  An initial profit target in that case would be near the $75 mark.

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