Tuesday, July 13, 2010

NSC Watch

The freight carrier Norfolk Southern Corp. (NSC) came roaring up the tracks when analysts made nice today about its prospects. Despite the volume spike and the bull signals, there's room for caution on this old-line railroad stock.

NSC $55.18

The very near-term problem is that the price pushed through the 20-day simple moving average, and then pulled back to below it. That argues against momentum.

Moreover, on the three month chart, the stock has been trading in a range, between $50 and $62. There are ways to make money from sidewinders; they produce base hits, no home runs.

Even so, volume is running 56% (so far) above yesterday's, and that must be taken seriously.

Earnings will be announced July 27 after the markets close. Earnings over the past year have produced some moves, but with an average true range of 3%, NSC just barely qualifies under my volatility rules for earnings surprise plays.

(Generally, I want to see the 14-day average true range divided by the current price to come out as 3% or greater, and I'm much happier at 5% or greater.)

The stock is trading in the middle of its sideways trend, so there's little besides analyst chatter to suggest whether an earnings surprise would be to the upside or the down.

Surprise-averse traders will avoid taking a position until after earnings, and then look at it again. An iron condor covering the entire range of trading $50-$65 comes out to a 67¢ credit for an OK, but not spectacular, sideways lay.

Surprise-loving traders will enter within by July 20 or so. My best play on this would be a strangle at $55, and perhaps biased to the upside.

Reversal Levels
  • $60.84, +10.3%
  • $57.29, +3.8%
  • $55.32, +0.3% (20-day ma)
  • $55.18 <== You are here.
  • $50.03, -9.3%

The Great Reflation: How Investors Can Profit From the New World of Money
OK. The credit bubble burst. Housing, burst. Shockwaves reverberated. Markets collapsed. What lies ahead as we reemerge from the wreckage.

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment. No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
  • psar - Parabolic Stop and Reverse
  • adx - Average Directional Index
  • pps - Person's Proprietary Signal
  • ma20 - 20-day moving average
  • macd - Moving Average Convergence-Divergence
  • sto - Fast Stochastic
About the glance: The colors indicate the state of each signal.
  • trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
  • adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
  • psar, pps, macd: green for bull mode, red for bear
  • sto: green for overbought, red for oversold, yellow for the neutral zone.

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