Railroad Stocks Trading Lower on Dismal Q2 Revenue

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Railroad Stocks Trading Lower on Dismal Q2 Revenue

Railroad components of the Dow Jones Transportation Average (DJTA) are trading down after CSX Corporation (CSX) and Union Pacific Corporation (UNP) topped profit projections while falling short on revenue. Revenues at both divisions fell by roughly 25% year on year, reflecting a recessionary situation that might last far into 2021. Union Pacific cautioned that carload traffic would fall 10% or so from 2019 levels in fiscal year 2020, while CSX warned that capital investment will be at the “low end” of existing projections.

Key Takeaways

  • The amount of transportation typically reveals economic strength and weakness.
  • For more than a decade, Union Pacific has outpaced CSX.
  • Both firms anticipate significant challenges for the remainder of 2020.

Transportation stocks are “canaries in the coalmine” for the US economy, with shipping volume increasing during expansions and decreasing during recessions and downturns. We should anticipate comparable results from other DJTA components in the following weeks, demonstrating the pandemic’s persistent effect. Nonetheless, aspirations for quick vaccination deployment may retain a bid beneath these difficulties, as they have in other market sectors reporting poor quarters.

Expansion is the stage of the economic cycle in which real GDP expands for two or more consecutive quarters, from arough to apeak. Typically, this is accompanied by an increase in employment, consumer confidence, and stock markets. Economic recovery is another term for expansion.

CSX Long-Term Chart (2006 – 2020)

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In 2006, CSX stock broke out above the 1997 high at a split-adjusted $10.41, launching a sustained uptrend that peaked in the mid-$20s in 2008. The succeeding upswing remounted failed breakthrough support in June, after a severe drop into March 2009 concluded in the single digits. Price movement completed a 100% retracement towards the former high in 2011 and relaxed into a long-term sideways pattern before resuming its upward trend in 2014.

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That surge was short-lived, peaking in the mid $30s at the end of the year, ahead of a severe decline that found support at $20 in January 2016. Following the presidential election, the stock surged again, reaching a high of $76.24 in September 2018. It reached an all-time high four points above that level in May 2019 before completing a head and shoulders collapse and falling to a three-year low in February 2020.

In June, the recovery into the second quarter was halted around the.786 Fibonacci selloff retracement level before settling at the 50- and 200-day exponential moving averages that were tightly aligned (EMAs).A optimistic bid into the earnings announcement fell short of the previous high, but the dip this morning hasn’t harmed the modestly favorable technical picture, so buyers may return to the rescue in the coming sessions. Nonetheless, poor accumulation suggests that prices will not rise much in the following weeks.

Fibonacci numbers are used to produce technical indicators by using a mathematical sequence devised in the 13th century by the Italian mathematician known as “Fibonacci.” By adding the preceding two integers, a series of numbers beginning with zero and one is generated. The first component of the series, for example, is 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89,144, 233, 377, and so on.

Union Pacific Long-Term Chart (2006 – 2020)

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In the last 15 years, Union Pacific has outpaced its sector competition, breaking out over 1997 resistance in 2006. During the 2008 economic meltdown, the stock fell to breakout support and then rebounded rapidly into the new decade, reaching new highs in the fourth quarter of 2010. It made remarkable increases during the middle of the decade, peaking at $124.52 in 2015 before falling to a three-year low in January 2016.

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A breakout in December 2017 carved a succession of new highs until January 2020’s all-time high of $188.96, paving the way for a vertical downdraft that surrendered more than 84 points into March. The ensuing rise extended higher than CSX, almost missing a 100% retracement before settling on the tightly aligned 50- and 200-day EMAs in June. Following the announcement, the stock is trading roughly 10 points below June resistance, with steady accumulation encouraging higher prices.

The Bottom Line

Railroad stocks are down in the pre-market on Thursday after major firms reported poor second-quarter 2020 revenue figures and warned of further challenges.

Disclosure: At the time of publishing, the author had no investments in the aforementioned securities.

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