Norfolk Southern's Breakout Could Be Derailed

 | Apr 20, 2017 | 12:53 PM EDT
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Norfolk Southern  (NSC) is showing price strength today, but a breakout to new highs could be derailed for the near term. The pullback in NSC in March was deeper than I would like to see, even though nearby support around $110 has held fast. NSC pays an OK dividend, but you can catch a faster train if your are looking for capital gains.

Let's check the road bed, the undercarriage and the charts and indicators to see how to proceed with NSC.

In this daily bar chart, above, we can see the strong advance for NSC from its June lows as prices climbed from $80 to near $125 in just eight months. Prices topped in late February and corrected back to $110, a prior resistance area on the way up to $125. NSC has spent the last four weeks or so below the declining 50-day moving average line. A rally in early April stopped short of the moving average line and today's rally may fail, too. The 200-day moving average line is still rising. The On-Balance-Volume (OBV) line has risen and confirmed the rally since May, but the line has turned soft in early March. A rising OBV line is bullish and signals aggressive buying, but a declining OBV line tells us there is liquidation going on by investors. The Moving Average Convergence Divergence (MACD) oscillator gave us a cover-shorts buy signal at the beginning of this month, but it is below the zero line so no outright buy signal yet.

In this weekly chart of NSC, above, we have mixed signals. Prices are above the rising 40-week moving average line, which is bullish. The weekly OBV line turns up in late October, which is positive, but it has turned neutral the past two months. The weekly MACD oscillator signaled a take-profits sell signal at the beginning of March.

In this Point and Figure chart of NSC, above, we can see a large base pattern from 2015. The trade at $97 was a major breakout and yields a possible long-term price target of $158. Reaching this target will require a breakout at $126.

Bottom line: The daily and weekly charts of NSC show some weakness, so while the major trend is still up, we may need further sideways/basing action before we are strong enough to break out to new highs. Traders should wait for the daily OBV line to turn up before approaching the long side. Risk a close below $109.

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