When we last reviewed the charts and indicators of Norfolk Southern (NSC) not quite a month ago , we summed up our thoughts this way: "The price of NSC looks a little vulnerable. Traders might want to book some profits looking to re buy at a better level while longer-term investors should only worry if prices close below $115 as this could precipitate further losses."
I always find it interesting to look at how prices behave compared to expectations or forecasts. Prices retreated after Nov. 8 and stopped short of $125 so nimble short-term traders may have acted and investors remain long. In the past week NSC has rallied to a new high. A fresh look at the indicators should be interesting. Let's check.
In this daily bar chart of NSC, above, we can see that NSC rallied above the 50-day moving average line and the slope of the line has recently turned higher. The 200-day line is starting to crest but is still comfortably below the price action. One indicator of concern is the On-Balance-Volume (OBV) line, which has not matched the price action and has not risen to a new high like prices have. This is a bearish divergence which if it continues can be a "heads up" to a possible reversal.
The trend-following Moving Average Convergence Divergence (MACD) oscillator has crossed above the zero line for an outright go long signal.
In this weekly bar chart of NSC, above, we can see that most but not all of our indicators are confirming the new price highs. Prices are trading above the rising 40-week moving average line but the slope of the line is starting to crest. The weekly OBV line has risen to a new high to confirm the advance, unlike the daily line.
In the lower panel is the 12-week momentum study. Price momentum makes a high in January and a lower high in October as prices make higher highs. This is a bearish divergence covering a long period of time but it can foreshadow a problem with the advance.
In this Point and Figure chart of NSC, above, we can see a potential longer-term price target of $163.53, which is bullish. On the other hand the chart also shows that a decline to $133.94 would be a short-term bearish signal.
Bottom line: Prices are pointed up but some bearish divergences persist. Investors can continue to hold raising their sell stop to a close below $120 now. Traders should use a stop below $125 on new longs but a close below $135 will start to make me nervous.