While transportation stocks as represented by the iShares Dow Jones Transport. Avg. (ETF) (BATS:IYT) are up by over 5% for the year-to-date, Kansas City Southern (NYSE:KSU) has rallied closer to 25% over the same period, thus showing leadership in the space. Barring any sudden major bearish reversal I expect KSU stock to have more upside left into year-end.
Transportation stocks are always a hotly debated group of stocks among the smart-money investors I speak with, not the least of which is because opinions are split as to whether the Dow theory still applies in today’s economy. Either way, it is difficult to argue with charts and factual price history, which is why I continue to like railroad stocks such as that of Kansas City Southern.
KSU Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Looking at the multiyear weekly chart, we see that KSU stock after a strong run out of the financial crisis lows in 2009 began to correct/consolidate this move in 2014. By early 2016 KSU stock had corrected by 50%, which is represented by the purple horizontal. A 50% correction of a strong multiyear rally is anything but uncommon and through the longer term lens a healthy “corrective” phase.
The rally off the early 2016 lows has since pushed the stock back above its 50-, 100- and 200-week simple moving averages, the former two are meanwhile also turning back up.
From this angle and until the stock breaks back below these moving averages, the intermediate-term trend points higher.
Moving averages legend: red – 200-day, blue – 100-day, yellow – 50-day
On the daily chart, we see that as a result of the latest rally this year KSU stock now also has its near- and intermediate-term moving averages all pointing higher. In June the stock managed to push above horizontal resistance around the $100 mark, which currently also lines up with the blue 100-day simple moving average and thus provides a good area of technical reference (support) to focus around.
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Given the current eerily low volatility environment in the broader stock market and the tendency in the September – October period to see a rise in volatility, I am in no immediate hurry to buy the stock but am closely watching it for a buy once a seasonal volatility spike has run its course.
Active investors wanting to dip a toe in KSU stock already can do so at current levels using the $115 – $120 area as upside price targets and any push and hold below the $100 area as a well-defined stop loss.
Check out Anthony Mirhaydari’s Daily Market Outlook for Sept. 20.
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