The share price of Union Pacific (UNP) traveled south for 12 months before we saw a turnaround in January of this year. Prices have chugged over 40% higher in just half a year and now look extended. A pullback looks in order.
In this daily chart of UNP, above, we can see the move up to the late January low from below $70 with prices pushing well up into resistance that extends up to $100. Prices are above the rising 50-day simple moving average line and over the flat 200-day average. There is a bullish, but late, golden cross of these averages in June. So much for the lagging indicators. There is also a bearish divergence from our leading indicator -- momentum.
The daily On-Balance-Volume (OBV) line shows a little improvement the past few months, but so far does not really show aggressive buying with a strongly rising line. Prices made higher highs in July versus April, but the 12-day momentum study made equal highs. This bearish divergence is not as powerful as if momentum made a lower high, but it is still a divergence and can foreshadow a downward reaction. The slow stochastic indicator (a coincident indicator that indicates overbought or oversold conditions) in the lower panel is crossing to the downside from an extreme overbought reading. UNP could back up to $90 or lower to unwind this overbought condition.
In this three-year weekly chart of UNP, above, we get a bigger picture view of UNP. Time itself could be considered an indicator. Prices may be extended on a daily scale but may be "just getting going" when viewed from a weekly scale. UNP is above the 40-week moving average line, but the line is still flat. The weekly OBV line is improving. The 12-week momentum study shows a bearish divergence with lower highs versus the higher price highs.
UNP has had a good run so far this year, but prices are extended in an area of resistance. Don't be surprised by a retracement and a period of further sideways price action.