A few weeks ago we took a look at the transport sector as one group that was leading the charge higher. This is a positive for the markets and the health of the current rally as this is a sector associated with the early stages of a bull market. One group in the transports sector that has been acting well and heading higher is the railway stocks. The rails not only benefit from a recovering economy but even increased imports from China as goods brought in on the West coast filter through to the rest of the country. Most of the rails are trading at 52-week highs and beginning to emerge from their current bases.

CSX Corporation (NYSE:CSX ) for instance is trading at 52 week highs and recently cleared a base near $62.50. CSX has since settled into a base on base pattern as it consolidates in a tight range between $62.50 and $65. Traders should watch for a break above the current tight range as it could signal a resumption of its current uptrend.

Trinity Industries, Inc. (NYSE:TRN) is another rail stock that is trading above a recent base. TRN was trading in a lateral channel from October through December. The $35 level was holding it back until TRN finally cleared this level a few days ago. TRN is now attempting to breakout and could challenge its 52 week high just over $27.

Norfolk Souther Corporation (NYSE:NSC) is trading in a very similar pattern to TRN, although it has yet to clear its current base. NSC has been holding above its 20 and 50-day moving averages, and is pressing up against resistance near $63.65. Traders should be watching this level as a move above this range could to a test of its all time highs in the $70's.

Canadian Pacific Railway Limited (NYSE:CP ) is also trading in a tight range near 52 week highs. CP is near the bottom of its current range, but because the range is actually very tight, CP is also not too far from the top of the base. CP was threatening to fall under its 20 and 50-day moving averages recently, but has managed to close back above these two moving averages. Traders should watch the $66 level for a possible breakout.

Bottom Line
The rail stocks are a great indicator to follow, especially coming off a bear market. The rails are an early cycle group and should benefit from renewed hope of an improving economy by market participants. It will be very difficult for the indexes to not follow in the footsteps of the transports if they continue to head higher. This is one reason traders should watch this group even if not planning to trade it.

Charts courtesy of stockcharts.com

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

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