Sector Spotlight: Railroads

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Tickers:  CSX / CNI / CP / NSC / UNP

The Sector Spotlight shines on the RAILROAD Sector within Industrials. The Technical posture of each chart will be evaluated with the key actionable levels identified.

Railroad sector Snapshot  

In my opinion Rails fit the profile of a sector I think will work well in 2022. Here a few bullet points.

  • Sector operating in the real economy.
  • Rail traffic is booming with every car filled. This gives these companies pricing power. This should remain the case for the balance of 2022.
  • Defensible P/E ratios with companies making real profits

$CSX  – CSX Railroad

Nice chart featuring a rising trend with an RSI ( top panel ) persistently in its bullish regime and PPO momentum also bullish trying to execute a bull cross. The indicators are supportive of higher prices. What will open the chart up is a breakout above $37.50. THat would be the level to alarm in your platform.  Bottom Line: Productive looking chart; looking for a breakout above $37,50 in the weeks to come.

$CNI – Canadian National

Steady rising trend with bullish RSI and PPO indicators. Notice the PPO has already executed the bull cross so that’s a nice positive.  You can see that back in October price tested this $133.50 / $134 are but was rejected. Now we are back at that level and looking for the break out. I like CNI’s chances here to make that breakout move with potential to move towards the low $150’s over time. Alarm $134 and be ready to go on this emerging set up.

$CP – Canadian Pacific

Another productive looking set up with a clear line to shoot against should price put $81 in the rearview mirror. PPO is breaking above the zero line and after a brief dip below, the RSI is back into its bullish regime.  Alarm $81/$82 for the breakout.

$NSC – Norfolk  Southern

The chart is similar to CSX’s. There’s a price triangle pressing against $290 resistance. The thing that I don’t particularly like is the weaker look to RSI and PPO indicators. Not bad mind you, just lagging a little compared to the others. That said, alarm $290. A breakout and hold above $290 will change the equation and will undoubtedly improve the posture of the indicators.

$UNP – Union Pacific

Union Pacific is often cited as the sector leader. Since I am not a fundamental analyst I cant argue that either way. From a chart perspective, it is leading the group. Price has broken out above $255 and is open to carve out higher prices. But as it sits, where would you get in? Unless you’re fine risking a pull back to $255 / $250 there isn’t a line close enough to shoot against.  If you really like the name, set an alarm at $255 for a pull back to $255 Trend line and lateral support. That would give you a great entry with a tight stop just below.


Relative Rotation Study

RRG Graphs give you a pictorial view of how each ticker is performing against a benchmark and to each other. A typical rotation moves clockwise.  Leading, weakening, lagging, improving.  As you can see in this 4-week rotation study, 4 of the 5 names are in the leading quadrant. Birds of a feather flock together. They are all strong and outperforming SPY. I like the posture of CNI. Moving from lower left to upper right. I also like $CP which is operating at a high level.

Key Take-Aways

  • The Railroad Sector is strong and outperforming SPY
  • Robust freight demand and pricing power put Rails in the sweet spot of sectors that should work in a rising rate environment.
    • Tangible asset companies with real earnings, real profits and defendable P/E’s
    • Higher input costs should be able to be passed along through the supply chain.
    • The fly in the ointment is recession risk.  But you can say that about any stock. If demand craters, rails will suffer.
  • Technically, all the charts are strong and bullishly positioned.
    • If the Rails work, they’ll all be working.
    • I like the posture of $CP and $CNI the best.
      • Super clear lines for  breakout and therefore objective entries and stops just below will be available.

Disclosure: I have no position in Rails. I am alarming the levels discussed and plan to begin a position in one or 2 names if / when they trigger.

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