NSC Technical Analysis

Click on Chart to Enlarge

The chart above is of NSC which is a railroad company, Norfolk Southern.

I bought a few Dec 55 put option contracts on this today. There are a number of things I wanted to point out on this chart for the interested technical analyst.....

Not visible on this chart is the long term trend. The stock was in a bull market for several years and the recent decline obviously broke the uptrend channel and the speed and size of the decline is greater than the bull market corrections on the way up. If you remember anything from this post, remember that last sentence.....that is typically the nail in coffin after a bull market. It is a clear shift in long term trend.

So, this particular stock has obviously topped, and the general markets are obviously in a bear market. So now we look for a good point at which to short the stock or to buy put options.

Now to the technical analysis.......

The stock is rising and is just under the 50 day moving average on this advance. That moving average is a key average that everyone watches and where smart money will look to short the stock on its first bear market rally.

Second the bollinger bands overlying the chart show that the stock has come up and touched the bands. The 3 standard deviation bands are not on the chart, but price actually touched those bands too. This provides a great area to look to short from a statistical point of view as those bands will contain over 95% of price action and a touch of the upper band in a downtrend is often a reversal point.

Also, look at the rate of change indicator above the chart. Despite a short advance, that line has hit peaks only seen a few times the last couple years. These ROC peaks in bull markets often mark short-term tops, and in bear markets I have seen this initial high momentum thrust after the first leg down be the top before massive declines in the next leg down.

Underneath the chart is a fast stochastic chart showing the fast stochastic line is overbought. In bull markets I don't follow that line much, but in bear markets an overbought stochastic often immediately leads to weakness.

I don't use volume as a primary indicator, but when you see heavy volume declines, followed by overlapping upward prices on declining volume, that is hallmark for a corrective advance rather than new uptrend.

Today also formed a bearish engulfing pattern, though on low volume. But still, that rejection of higher prices is another clue that sellers are there to jump on this.

To sum up, I think this is a stellar opportunity to make a bearish trade on NSC. I am not going to track this on the blog, but for a swing style trader, I would view 63.00 as a stop loss and if stopped out look for the next bearish candle stick to re-enter. For someone who is willing to give some wiggle room on this stock, I think that the 69.00 is unlikely to be approached before another large decline in the stock.

Pete