Sector Spotlight: Railroads

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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