A Trade in the Trains?
With the iShares Dow Jones Transportation Average Index Fund ETF (NYSE: IYT) closing lower for a third day in a row ahead of trading on Wednesday, it is no surprise to see weakness in one of that sectors leading components: the rails.
Here, the most interesting member of the group is Norfolk Southern Corp (NYSE: NSC), a major Virginia-based company that operates a pair of freight railroads in the United States and Canada.
NSC reported earnings after the bell on Tuesday that were better than expected on earnings, but lower than expecations when it comes to revenues.
What is interesting is whether or not this will provide a catalyst for buyers to enter the market, or if the stock will have further to fall. NSC finished lower for three days in a row as of Tuesday’s close, trading at new short-term lows just outside of technically oversold territory. NSC closed on Tuesday with a neutral, 6 out of 10 rating, and a short-term positive edge of nearly 1%.
Another significant pullback in the group is in shares of Kansas City Southern (NYSE: KSU). This railroad stock plunged by more than 7% on Tuesday, marking its third consecutive selling day with bearish emphasis. Trading at new, short-term lows and in technically oversold territory, KSU’s severe selling was largely a function of the mixed news from the company’s quarterly earnings announcement on Tuesday. That said, traders had been trimming positions for days before Tuesday’s breakdown, with six out of the previous eight sessions closing lower.
Ahead of trading on Wednesday, shares of KSU have a short-term, positive edge of more than 2%.
Also worthy of note among railroad stocks that have begun to pullback in bull market territory are shares of Union Pacific Corp (NYSE: UNP). Like Norfolk Southern, UNP has begun to pullback in response to a rally to 52-week highs, and finished at essentially break-even levels on Tuesday. Union Pacific is trading in neutral territory, with a 5 out of 10 rating and a positive edge of half a percent.
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David Penn is Editor in Chief of TradingMarkets.com