CSX Corporation (CSX) beat earnings estimates on Jan. 16, and the stock responded with a rebound to as high as $78.40 on Jan. 29 after trading as low as $73.94 on Jan. 23. The railroad operates 21,000 miles of track through 23 eastern states and into Canada.
On the west coast of Florida where I life, the track near my home has just been upgraded despite limited traffic. The overall issue is that rail traffic has been declining in recent quarters.
CSX shares closed Tuesday, Jan. 29, at $76.22, up 5.3% so far in 2020. The stock is 5.6% below its May 3, 2019, high of $80.73. However, the stock is in bull market territory at 30.4% above its Dec. 26, 2018, low of $58.47.
The railroad has had its bull and bear market moves since its positive "key reversal" day on Dec. 26, 2018. A "key reversal" was confirmed following the Dec. 26, 2018, low of $58.47. The close of $61.72 that day was above the high of Dec. 24, 2018, which was $60.52.
CSX stock rallied by a bull market 38% from the Dec. 26, 2018, low to the May 2, 2019, high of $80.73. CSX then declined by a bear market 20.7% to its Aug. 15, 2019, low of $63.97. The stock then rallied by a bull market 22.5% to its Jan. 29 high of $78.40. The fundamentals are neutral, with a P/E ratio of 18.39 and dividend yield of 1.25%, according to Macrotrends.
The daily chart for CSX
The daily chart for CSX shows that the stock is confirming a "golden cross" today as the 50-day simple moving average rises above the 200-day simple moving average, confirming that higher prices lie ahead. The price gap lower on July 17 was in reaction to a negative earnings report. The latest two earnings reports on Oct. 16 and Jan. 16 filled that price gap.
The stock closed 2019 at $72.36, which was an important input to my proprietary analytics. The annual value level for 2020 is $69.71. This week's pivot is $76.31. The quarterly and semiannual risky levels are above the chart at $83.18 and $89.51, respectively.
The weekly chart for CSX
The weekly chart for CSX is positive but overbought, with the stock above its five-week modified moving average at $74.72. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $56.31.
The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 85.63 this week, up from 81.37 on Jan. 24, remaining above the overbought threshold of 80.00. At the May 1 high, this reading was 91.05, with the level above 90.00 putting the stock into an "inflating parabolic bubble" that popped following the July 16 disappointing earnings report.
Trading strategy: Buy CSX shares on weakness to the annual value level at $69.71. Reduce holdings on strength to the quarterly and semiannual risky levels at $83.18 and $89.51, respectively.
How to use my value levels and risky levels: The closing prices of stocks on Dec. 31, 2019, were inputs to my proprietary analytics and resulted in new monthly, quarterly, semiannual, and annual levels. Each calculation uses the last nine closes in these time horizons. New weekly levels are calculated after the end of each week. New monthly levels occur after the close of each month. New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which typically is followed by gains of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.