Kansas City Southern: Short Double-Topping KSU Stock

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The S&P 500 dropped 3.5% last week, marking its worst week since the first half of 2012. The price of oil is just beginning to weigh on this large-cap index, but some areas of the market look considerably worse. Railroad systems operator Kansas City Southern (KSU) — after its decline since the November top — now looks to have completed an important double top formation, which might make it an attractive stock to play on the short side on any bounces.

beat the bell stock investing adviceThe transportation stocks as a group fell more than 3% last week and now look to have confirmed the late November rally as an overshooting move that was caused by momentum players chasing them higher. But as these things go, stocks that get artificially pushed higher by short-term mentality traders often also can turn south quickly.

In recent weeks, both Bank of America and Nomura had positive comments on KSU stock, with price targets of $135 and $133, respectively, and the stock saw a little bounce in early December after competitor CSX Corportation (CSX) provided positive guidance.

Moving right over to the charts …

KSU Stock Charts

KSU stock along with many other railroad operator stocks had a great run over the past few years; specifically, Kansas City Southern began to extend above its multiyear uptrending support line after an orderly rally in early 2013. KSU then mean-reverted back to this line 12 months later in early 2014, only to extend higher one more time. By November, KSU shares revisited their November 2013 highs (blue bubbles), which is where selling pressure arose in recent weeks and pushed the stock back lower.

From a momentum perspective, the entire “over-extension” rally since early 2013 came on waning support as the Relative Strength Index (RSI) at the bottom of the chart has simply created a series of lower highs. Tactically and through a multimonth lens, KSU stock now looks to have confirmed a more important top that active investors could use to play the stock against on the short side.

KSU stock charts weekly
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On the daily chart, note that after the early December bounce that came on the CSX stock news mentioned above, KSU stock quickly resumed its slide and broke its 2014 support line and closed last week at its next support area made up of horizontal support (blue box) as well as the 200-day simple moving average.

In the immediate term, the stock increasingly looks ripe for an oversold bounce, but keeping in mind the bigger-picture chart above, any move back into the $115-$116 area would likely offer active investors and traders a better opportunity to short the stock rather than buy it for any new leg up.

KSU stock charts daily
Click to Enlarge

On the downside, and after a possible immediate-term oversold bounce, KSU stock in the near-term looks to have room toward the $100 as a next downside target.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/kansas-city-southern-ksu-stock-completes-technical-double-top/.

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