CSX Corporation (CSX) — While CSX stock is up almost 5% year to date and overcame some initial technical resistance on Friday, shares have now arrived at a bigger juncture of resistance. Bulls should proceed with caution and bears may have an opportunity to short shares.
When the railroad company reported earnings on April 12, its sales and earnings trajectory looked similar to that of many other companies that have reported so far, i.e., notably worse year-over-year comparisons. Q1 revenue fell 14%, while net income declined almost 20%.
On the weekly chart, we see that after a (too) steep rally into the late-2014 highs, CSX stock began topping out. And after a retest of those highs in May 2015, shares finally succumbed to gravity.
The fall from the 2015 highs to the early 2016 lows measured more than 40%, and is thus considered a significant correction. Along the way, CSX stock sliced below its 2009 trendline, as well as its 200-week simple moving average (red line) for the first time since pushing above it in 2009.
Importantly, from a historical context, when CSX stock rallied too far above its 200-week in 2011, it mean-reverted back to it later that year. The same type of mean-reversion move took place in 2015, except this time shares sliced below the moving average on another leg lower.
But now CSX stock has rallied back to the 200-week, which coincides with the former horizontal support line. It is also nearing its 50-week moving average (yellow line). While it could overshoot in the near term, this will likely serve as a difficult layer of resistance to overcome.
Moving on to the daily chart below, last week’s 3.4% rally took shares above their 200-day moving average for the first time since July. But Friday’s higher high has not yet been confirmed by better upside momentum. In fact, the MACD oscillator looks to have topped for the near term in mid-March.
The nimblest of traders may be able to capture a little more upside, but most traders would be wise to respect the nearby technical resistance. Any notable bearish reversal from here could set up a short-side trade with a downside target in the mid-$20s.
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As of this writing, Serge did not hold a position in any of the aforementioned securities.
