Many investors have been cognizant of the decline of the Dow Jones Transportation Average (DJTA) this year but not everyone has dissected its parts. The DJTA peaked near the end of 2014 and took a turn south in March, as seen in the chart below. The Transports, as some people call them, includes airlines, truckers, package movers and of course, the railroads.
With the report of a slowdown in rail traffic, we took a look at four railroad stocks to see if the news and the price action matched.
Because of the year-to-date decline in Trifecta Stocks holding Union Pacific (UNP), we needed to look at the five-year weekly chart above to gain some perspective. After topping in late 2014 and early 2015, UNP has given back a big chunk of its gains. Prices are now back around the highs of 2013. This prior resistance area around $80 could act as support in the weeks ahead. But (there is always a "but") the risk is a further decline to the next support area around $60 from 2012.
Norfolk Southern (NSC) made a possible head-and-shoulders top pattern with a "neckline" at $100 in the chart above. This top pattern has about a $30 amplitude from the neckline to the head. To get a price target from a head-and-shoulders top, chartists measure the distance from the neckline to the top of the "head" -- $30 -- and subtract it from the neckline for a target of $70. NSC has further to go to reach that objective.
CSX Corp. (CSX) displays a double top formation, or two failed attempts to move higher. This multi-month top has reached its initial price target but shows no desire to bottom. Further declines to the 2012 support area could mean a secondary target of $20.
With Kansas City Southern (KSU), we saved the biggest top pattern for last. For two years KSU made what I would call a massive top between $90 and $125. With a move below the $90 neckline, a longer-term price target of $55 ($90 minus $35 equals $55 -- subtracting the height of the pattern from the neckline) is possible.
The tops we see on these charts have developed over many months and these developing downtrends will likely need many more months before they are mature. Buyers will need to exercise extreme patience to travel the rails.