UPS cuts ties with Amazon after strong earnings report

In late January 2025, UPS, a major global shipping and logistics services provider, announced its earnings report, showcasing performance that exceeded market expectations for both earnings and revenue. The announcement was significant and came alongside a strategic change in their partnership with Amazon, which involved reducing their shipping relationship by up to 50%. This decision was made as part of a broader strategy to prioritize more profitable shipments over the volume-centric approach that characterized their previous dealings with Amazon. The rationale for this pivot is to focus on partnerships and shipments that yield higher margins. However, the market reacted negatively to this news, causing UPS’s stock price to plummet nearly 20% in a single trading day. A deeper analysis of the stock's performance indicated that this sell-off was not based entirely on the earnings report but was influenced heavily by the strategic change with Amazon. Financial experts noted that while the reduction in Amazon shipments aims to bolster profitability in the long run, the immediate market reaction was a cause for concern for investors who have closely monitored UPS's stock over the preceding months. As a response to the steep decline, analysts and traders began examining technical indicators such as the Relative Strength Index (RSI) and the Directional Movement Index (DMI). The RSI is a popular momentum oscillator that provides insights into whether a stock is overbought or oversold. In this case, UPS’s RSI dipped below 30 between January 30 and February 5, indicating an oversold condition which often leads to a reversal in stock price. Similarly, the DMI, which helps track the strength of price trends, showed signs of a potential trend reversal. Both indicators suggested that the selling pressure may be easing, hinting at a possible recovery in the stock price. Despite these signs, the price action of UPS needs to confirm whether this bounce can be sustained. Traders looking for opportunities have identified a bullish setup using options strategies, namely a bull call spread constructed by buying a $114 call option and selling a $115 call option. This strategic move only requires a $1 increase in UPS’s stock price to double the investment, meaning the trade remains profitable as long as the stock stays at or above $115 by the expiration date. The analysis also identified resistance levels at approximately $118 and $123, which provide UPS with significant room to rise before facing selling pressures. Investors remain cautiously optimistic about UPS's ability to bounce back from this steep sell-off, as the changes implemented may enhance its long-term profitability while making the stock a compelling trade for bullish investors.