Yahoo Finance Trade of the Day: CSX Corporation (CSX) Stock Is Flashing a Warning
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Shares of railroad company CSX Corporation (NASDAQ:CSX) fell more than 5% on Wednesday following the company’s latest earnings report. Fundamentally speaking, the stock remains in a strong position and Wednesday’s price action is bringing about new opportunities for traders and active investors.
Source: Don O’Brien via Flickr
For the latest quarter, CSX Corporation beat top-line revenue estimates. The company also increased its stock buyback program by an additional $500 million to $1.50 billion, always a welcome sign for stock holders and something that at the margin should put a bid under the stock on dips.
Before dissecting the charts of CSX stock, let’s note that the transportation stocks as a group and as represented by the iShares Dow Jones Transport. Avg. (ETF) (NYSEARCA:IYT) remain in a well-defined technical up-trend despite a little pause over the past few days.
From this angle and to my eye, the IYT ETF would have to give us a notable bearish reversal on a weekly or two-week basis and a weekly close below the mid $160s before a bigger warning sign would flash.
CSX Stock Charts
Keeping the IYT chart in mind, note that CSX stock on the longer-term chart currently trades well above its multiyear uptrending channel. Ultimately a mean-reversion move lower back into this longer-standing channel is almost inevitable, particularly considering the historic “overbought” readings on some of the momentum oscillators such as the weekly MACD at the bottom of the chart.
However and particularly in strong bull markets like the current one we are experiencing, stocks can remain in vertical moves for longer than many traders think.
Moving on to the daily chart, we see that we can draw another and more intermediate term trading channel for CSX stock, the bottom of which as a result of Wednesday’s post-earnings drop is now getting tested. Note that this current juncture also coincides with the stock’s blue 10 day simple moving average, thus making up a mini technical confluence area of support.
Should Wednesday’s intraday lows near $50.70 get broken, then a next move lower into the mid-to-high $40s looks likely. Alternatively, if this area holds and a bullish reversal rears its head, then a move back to the recent highs in the mid to high $50s will be in the cards.
For those unfamiliar, I’ll be hosting a special webinar Wednesday, July 26 for InvestorPlace readers to explain these confluence support and resistance zones and how they can be used with great accuracy for winning monthly and quarterly income trades.
Stock traders and investors could buy/sell the stock accordingly while options traders may find an opportunity here to sell out of the money call spreads like an August or November $55-$60 for income as the stock now stands a good chance of going through a consolidation phase either sideways to lower or sideways to slightly higher.
Check out Anthony Mirhaydari’s Daily Market Outlook for July 20.
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