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Railroad Stocks Chug to the Head of the Pack

David Becker
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www.iforex.com
Railroad Stocks Chug to the Head of the Pack

Railroad stocks are breaking out and are leading the market higher. The strong gains seen in this sector reflect increasing economic growth and the desire to move commodity such as oil, coal and grains throughout the United States. The increase in transportation is a robust sign for the US economy, as greater movement usually translates into stronger growth.

Railroad stocks may not be as exciting as momentum names, but most are in uptrends and trading near 52-week highs. DJ US Railroad Index ($DJUSRR) within a clear uptrend over the last eight months. After a consolidation in January-February, the surged above 1200 in March and recorded a 52-week high in April. Another consolidation took shape since mid-March and then again in early May and Tuesday’s break above resistance signals another continuation higher.

The Dow Industrials and the S&P 500 index hit a fresh all-time high on Tuesday in part driven by the strong interest in railroad stocks. There is also a diamond or even an inverse head-and-shoulders taking shape. Regardless of the pattern, the break to new highs is clearly bullish and this is one of the strongest industry groups in the market.

Additionally, momentum on the sectors is strong as the MACD (moving average convergence divergence) index has generated a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average, crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal.

The RSI (relative strength index) also reflects accelerating positive momentum as it is climbing higher and now printing near 65, which is the upper end of the neutral range but below the overbought trigger level of 70.

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