On a recent market video, I covered off the transportation stocks. Railways are one of the most important for me. Trucking may ebb and flow, Airlines may ebb and flow, but industries ride on the railways. When I see the railways performing well, it is hard to call a market top. When railway charts become damaged, caution is in order. I can’t say the railroads are damaged, but the charts are timely in March 2019 because if they are going to break down, the indicators are setup in a zone of caution. There are six I follow.
KSU- Kansas City Southern
After the 20% rally in the indexes, KSU has rallied a similar amount. Getting through to new all-time highs is about 5% from here. The purple area shows price action strength compared to the $SPX (S&P 500). The railway is performing slightly weaker than the $SPX shown by the down-trending blue line. We can see that the 2014-2016 period marked significant underperformance in relative strength. That is what we need to be wary off.
Price needs to break the double top to restart a growth trajectory. The PPO indicator measures momentum. It is extremely important that the momentum rises above zero and above the red trend line to change the negative picture. IF the stock fails to break out to new highs it is likely that momentum would fall below zero and usually that is met with aggressive selling.
CP Rail has been slightly outperforming for years. If the trend line shown in yellow on the purple relative strength chart breaks, I would take defensive action. Also notice the PPO has a very similar shape to the 2015 high. After dipping below zero in late 2014, it rallied but could not get a lot of momentum and rolled over just above zero. We currently see that same setup.
CNI Canadian National
CNI is a better-looking chart. The relative strength (RS) continues to improve and it looks like the chart will break out to new 12-month RS highs. The price action has broken the downtrend which is definitely bullish. The momentum is just barely above zero so that is typically a zone of caution. However, all bull market runs have to start making higher levels of momentum and crossing above zero is just one of the hurdles. The chart is bullish but I wouldn’t want it to break down with this low momentum.
CSXWealth Strength IndexAAPL is Extremely Up and trending Up Corp looks similar to the other railway charts above in terms of momentum. Barely above zero after going below zero. After this huge rally, it has been unable to get a lot of momentum to the upside. Until it does, be very aware of the fragility of the situation. Notice how close the RS line is to being tested. Also notice the SCTR ranking weakening in the top panel. Is also says caution, not sell. I think it is important to try to let this run to the upside, but downside protection should be relatively close.
CSXWealth Strength IndexAAPL is Extremely Up and trending Up.png" alt="" width="900" height="750" srcset="https://zone1-a365.kxcdn.com/wp-content/uploads/2019/03/CSXWealth Strength IndexAAPL is Extremely Up and trending Up.png 900w, https://news.wealth365.com/wp-content/uploads/2019/03/CSXWealth Strength IndexAAPL is Extremely Up and trending Up-300x250.png 300w, https://news.wealth365.com/wp-content/uploads/2019/03/CSXWealth Strength IndexAAPL is Extremely Up and trending Up-768x640.png 768w, https://news.wealth365.com/wp-content/uploads/2019/03/CSXWealth Strength IndexAAPL is Extremely Up and trending Up-696x580.png 696w, https://news.wealth365.com/wp-content/uploads/2019/03/CSXWealth Strength IndexAAPL is Extremely Up and trending Up-504x420.png 504w" sizes="(max-width: 900px) 100vw, 900px" />
Norfolk Southern is currently testing a prior high. In 2014, you can see where the chart failed to make new highs. While the price is trapped below, at or slightly above the breakout level, it is important to be aware of any declining momentum and relative strength. The PPO is slightly higher on this chart, but it is definitely at a fragile level. If it continues to run higher, that is a nice breakout setup. If it rolls over right here, this is a meaningful inflection point.
Lastly the best chart belongs to Union Pacific. The SCTR ranking is above 75 which suggests good price action. The RS is still in an uptrend. The price concerns me a little. The price had a breakout to new highs, but no volume came in, It now looks similar to the last breakout surge in late September. Also the momentum (PPO indicator) is right at the downtrend line. A roll over here would be typical for a bear market breakdown. Caution is warranted. My suggestion is to have a plan for an exit if this current rollover continues.