CSX Corp. May Have More in the Tank

 | Aug 10, 2017 | 8:36 AM EDT
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After chugging higher the past 18 months or so, CSX Corp. (CSX) has slowed down on our daily chart, but the weekly chart suggests we may have more in the tank.

Let's see if CSX is at a technical crossroad or if we will be getting an all-clear signal for the bulls. We want to pay extra attention to CSX because it is a member of the Dow Jones Transportation Average, and thus a fractional part of "Dow Theory."

In this daily bar chart of CSX going back 12 months, above, we can see that prices are now in no-mans-land between the declining 50-day moving average line and the rising 200-day moving average line. Joe Granville, if he were alive today, might suggest that pullbacks to the rising 200-day line are buying opportunities, but we might want to look closer.

As CSX climbed from $28 back in last August to above $54 in June and July, we saw prices test and trade below the rising 50-day moving average. There was a test in January, and in March and April prices were below the average line for a few weeks. Another test can be seen in May and one more in June.

During all these "tests", the daily On-Balance-Volume (OBV) line was positive/rising. Buyers of CSX were more aggressive, even as prices dipped. In July, the situation changes, as there is a small gap to the downside and the slope of the 50-day turned negative.

On top of that bearish signal, the OBV line weakened, telling us that sellers of CSX had become more aggressive. Also, the Moving Average Convergence Divergence (MACD) oscillator fell below the zero line in July for an outright sell signal. Right now, the MACD oscillator has narrowed towards a cover shorts buy signal, assuming the near-term strength in CSX continues.

In this weekly chart of CSX, above, going back three years, we can see that prices are above the rising 40-week moving average line. Notice how close to the bottom that 40-week average got you in.

The weekly OBV line is giving us two stories. First, the line shows strong buying from early 2016, but then the line turns neutral to negative from February of this year. Last, the MACD oscillator is in a bearish mode, but not an outright sell signal, as it is well above the zero line.

In this Point and Figure chart, above, we can see how CSX has traded by looking at reversals and ignoring volume. The chart shows a downside price target in the $46 area. A decline to $46, should it happen, would mean a test of the rising 200-day average line.

Bottom line: CSX held above some support in the $48-$46 area and has moved up a little. If it can continue to advance and overcome some resistance above $54, then all the indicators should turn positive again. Aggressive traders could probe the long side or add to existing longs, risking a close below $46 or the 200-day line.

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