Warren Buffett made them sexy, but bottoming price action makes them attractive. What are we talking about? The railroads, of course.
In this first chart, above, we show the decline and sideways price action of Kansas City Southern (KSU). KSU has traded sideways the past five to six months.
The On-Balance-Volume (OBV) line has been inching up over the past two months, and we can see a small bullish divergence in September. Prices have moved back and around the flat 50-day simple moving average. Strength over $100 for KSU will turn the picture more positive.
Trifecta Stocks holding Union Pacific (UNP) is basing, but has more work to do compared to KSU.
UNP has broken a seven-month downtrend and has started to trade sideways. We can see a small bullish divergence from our momentum study in August/September, but the OBV line has yet to get in gear with the price action.
Rallies in KSU and UNP will help lift the Dow Transport Average, everything else being equal.
For this half of the Dow Theory, we are looking for a close above 8,300 to establish an uptrend in the chart below.