Impressive earnings from Norfolk Southern Corp. (NSC) have caused several analysts to raise their price targets, with one as high as $95.

• The daily chart shows a gap in the $70.98-$73.40 area that is likely to be at least partially filled on a market correction. There is further support at $68.50
• The downtrend in the daily RS, line b, was broken on October 20. The RS did bottom (line c) ahead of prices
• The downtrend in the daily OBV has been broken, but so far it is acting weaker than prices
• The weekly OBV (not shown) has moved above its weighted moving average
• There is now a band of resistance in the $76-$78.60 area

Union Pacific Corp. (UNP) dropped to a low of $77.43 in early October but closed well above $100 last week. It released earnings on October 21 that beat analyst estimates. There is next major resistance at $106-$107.89.

• There is support at the gap between $98.50 and $99.87, with stronger support in the $94 area, line e
• A daily close below $88.80 would reverse the positive signal from the upside breakout
• The RS line has confirmed the price action and moved through its downtrend, line f
• The RS bottomed ahead of prices, as indicated by its uptrend, line g
• The daily OBV looks strong, having moved through resistance (line h) just after the lows. It is well above its weighted moving average
• The weekly OBV (not shown) has already made new all-time highs

What It Means: The impressive relative performance analysis of the railroads suggests that they are likely to again lead the market higher. With crude oil prices likely to move higher as well, the railroads will also increase their edge over the trucking industry.

Finding a good entry point will be more difficult, as all three companies have tested the daily Starc+ bands last week and are not far below the weekly Starc+ bands.

As I discussed in an earlier article, “buying on a dip” refers to a specific level, not just a broad market pullback. A two-stage entry strategy seems best, buying half the position at a partial filling of the gap and the other half closer to the breakout level.

How to Profit: For CSX Corp. (CSX), go 50% long at $22.16 and 50% long at $21.66 with a stop at $19.94 (risk of approx. 8.9%). Cancel the order if $24.50 is hit first.

For Norfolk Southern Corp. (NSC), go 50% long at $72.54 and 50% long at $71.62 with a stop at $65.22 (risk of approx. 9.5%). Cancel the order if $77.00 is hit first.

For Union Pacific Corp. (UNP), go 50% long at $98.66 and 50% long at $96.32 with a stop at $88.36 (risk of approx. 9.3%). Cancel the order if $105.60 is hit first.