Union Pacific's Rally Is on the Right Track

 | Apr 20, 2017 | 10:49 AM EDT
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Stock quotes in this article:

unp

,

csx

Union Pacific  (UNP) has rallied nicely over the past twelve months. More recently prices have traded sideways in a "rectangle shaped pattern" between $102 and $112. This four month consolidation pattern is likely to breakout on the upside because of the underlying bullish On-Balance-Volume pattern.

A strong move to the upside today for CSX (CSX) may be tipping the scales to the upside for UNP. Let's check on UNP charts and indicators to see what potential lies ahead.

In this daily bar chart of UNP, below, we can see that prices have traded up and down around the flat 50-day moving average line. Currently UNP has rallied back above this short moving average with a fresh turn to the upside for the On-Balance-Volume (OBV) line. Positive price action, along with expanding volume, is what chartists love to see. UNP is also above the rising 200-day moving average line.

The daily OBV line has turned up recently, and is "just a hair away" from a new high. The OBV line can lead prices, so we won't be surprised if it makes a new high before prices make a new high. Note that the OBV line has been rising since early November, so a six-month pattern of accumulation is not a flash in the pan.

The Moving Average Convergence Divergence (MACD) oscillator signaled a cover-shorts buy signal last month and is crossing above the zero line this month for an outright go-long signal.

In this weekly chart of UNP, above, going back three years, we can see that prices are above the rising 40-week moving average line. A test of the line last year was a buying opportunity.

The weekly OBV line bottomed in January of 2016 and rose for the next 12 months. The OBV line has declined slightly since earlier this year, while prices have moved sideways. This dip in the OBV line suggests some light selling -- and not what I would consider a major shift by investors. The weekly MACD oscillator crossed to a take-profits sell signal in February, but this indicator could swing back to a fresh buy signal if prices make new highs for the year.

In this Point and Figure chart of UNP, above, we ignore volume and concentrate on the price action without the small jiggles. This big 2015 to 2017 base could support an advance to $156, according to the methodology (counting the columns across and projecting them to the upside).

Bottom line:  The weekly bar chart (middle chart, above) shows some potential resistance in the $115 to $125 area. A strong close above $110 could help UNP to achieve escape velocity and propel prices into that overhead resistance zone. I would approach UNP from the long side risking a close below $102.

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