Trade Recommendation: Union Pacific Corp

Technical Overview

  • Union Pacific’s stock broke above a short-term resistance (red trendline and arrows in Figure 1) in September 2017 and subsequently moved higher for the rest of the year, gaining over 30%.
  • The rally which ensued last September was then supported by a key trendline (green trendline), which was retested on 9 occasions in 8 months (green arrows). Most recently, on April 26, the stock plummeted at the open after the company’s 1Q18 release, reversed, and managed to stay above the support (white arrow). Since then, there have been 3 additional retests, further signifying the trendline’s importance.
  • Earlier in the year, on January 25, the company reported 4Q17 earnings, which resulted in a large down-gap (orange arrow). After moving lower and bouncing off its support, the stock re-entered the pre-gap range (violet horizontal trendlines) on two occasions (violet arrows), giving two bearish K-Divergence signals (see my primer on gaps and the K-divergence theory for details). On both occasions, the stock sold off and retested its key support.

Figure 1. UNP Daily Chart

Implications

  • The stock is expected to continue oscillating within a narrowing range, as it is pushed higher by its support.
  • To the upside, the bearish K-Divergence range is expected to continue serving as resistance.
  • If the stock’s support is broken on a closing basis, it is expected to move sharply lower.

Outlook

  • Neutral while the stock is trading above its support and below the upper boundary of the K-Divergence range ($143.05).
  • Bearish if the stock closes below its support (green trendline).
  • Bearish implications of the K-Divergence signal will be negated if the stock closes above $143.05

 Trade Recommendation

  • Short the stock if it closes below its upward-sloping support (currently at $131.60, rising by roughly 15 cents/day).
  • Target: $120 (October 2017’s high, which later served as support during the February correction).
  • Stop: A close above $143.05

Disclosure: No position but may initiate a short stock/long put position as per the recommendation’s guidelines.

Featured image courtesy of Shutterstock.

 

Author:
http://www.linkedin.com/in/konstantindimov