I Would Favor an Upside Breakout on Norfolk Southern

 | Aug 10, 2017 | 9:48 AM EDT
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Norfolk Southern Corp. (NSC) is another member of the Dow Transportation Average (see our article on CSX Corp. (CSX) earlier on Thursday) that we want to watch closer. Late July and early August, NSC tested its rising 200-day moving average line.

Prices have traded higher in recent days but remain, so far, below the declining 50-day moving average line. A close above $120 will strengthen the chart picture.

Let's visit the latest charts and indicators to see how we want to trade NSC depending on how it travels -- north or south.

In this daily bar chart of NSC, above, we can see that prices have traded sideways since late January. Prices have roughly stayed between $110 on the downside and around $125 on the topside.

A sideways consolidation pattern can be bullish, or it can be a distribution pattern, and thus bearish. That sounds like if it doesn't go up it will go down, right? Let's look closer.

As prices moved between $125 and $110, we can see maybe four upside tests -- February, March, June and July. And we could find four downside tests in March, April, May and late July/early August. Tied? Maybe. During this neutral-looking trend, we can see a slight upward drift to the On-Balance-Volume (OBV) line, suggesting that buyers have been slightly more aggressive this year.

The Moving Average Convergence Divergence (MACD) oscillator is below the zero line, but has crossed upward for a cover shorts buy signal.

In this weekly bar chart of NSC, above, we can see a mostly positive picture. Prices are back above the rising 40-week moving average line after a test. The weekly OBV line has been strong since November and suggests that investors have accumulated long positions. The MACD oscillator on this timeframe is still in a bearish mode.

In this Point and Figure chart, above, we can see the sideways trading range displayed differently. If we split the area with a horizontal line through the middle, we would probably find as much price activity above the line as below the line. What this means is that buying and selling has been, or is, balanced. A break of $108.68, however, would be a new low and bearish.

Bottom line: NSC should make up its mind soon -- a breakout above $125 or a breakdown below $110. I am not sure that a break below $110 would be all that profitable, as there is a band of support in the mid-$90s. I would probably favor an upside breakout with a reasonable sell-stop.

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