Union Pacific Stock Could Gain 30% in Coming Months

Union Pacific Corporation (UNP) has lifted into Dow Jones Transportation Average leadership, breaking out to an all-time high above $150. This price action bodes well for its railroad rivals as well as the American economic engine, which is humming along at the fastest pace in a decade. More importantly, the rally is now accelerating, suggesting the stock can trade up to $200 as long as the United States, Mexico and Canada reach agreement on the successor to NAFTA.

The sector is nearing a major breakout after months of bearish behavior, underpinned by growing optimism about a north-south trade treaty. Railroads and truckers have the most to gain by an agreement because volumes will contract without robust cross-border commerce. These sub-sectors have the added benefit of limited exposure to the thornier issue of U.S.-China trade relations, making them attractive to risk-averse market players. (See also: Transports Nearing Breakouts Ahead of NAFTA News.)

UNP Long-Term Chart (1997 – 2018)

The stock posted a multi-year low at $3.80 during the 1987 market crash and entered an uptrend that continued into 1997, topping out in the upper teens. It sold off in two broad waves into the new millennium, bottoming out at $8.56 at the same time that big tech posted bull market highs. Price action then eased into a narrow sideways pattern that persisted into a 2005 breakout above the prior decade's high.

A sturdy uptrend stalled in the low $40s in 2008, yielding a small topping pattern, followed by a steep decline that found support on top of the 2005 breakout level in March 2009. The subsequent bounce completed a round trip into the 2008 high in 2010, generating mixed sideways action until a strong trend advance took hold in the second quarter of 2012. That rally impulse posted historic gains, more than doubling in price into the February 2015 top at $124.52.

The stock got cut in half into January 2016, bottoming out in the mid-$60s, ahead of a recovery wave that reached 2015 resistance in December 2017. It broke out immediately, entering a rising wedge pattern that pierced the upper trendline last week. This impressive strength has established new support near $152, offering a potential low-risk trade entry on a pullback, despite dramatic upside so far in 2018.

A Fibonacci grid stretched across the correction into 2016 places the 1.618 rally extension at $160, just four points above the most recent close. That harmonic level can trigger intermediate reversals, suggesting that sidelined players keep their powder dry for now in hopes of owning the stock at lower prices in coming months. Just keep in mind that a failure to hold new support above $150 would mark a bearish development, opening the door to a steeper slide. (For more, see: Top 4 Railroad Stocks for 2018.)

UNP Short-Term Chart (2017 – 2018)

The stock entered the rising wedge pattern immediately after breaking out above the 2015 high in November 2017, carving a shallow uptick that stalled near $150 in July 2018. Buyers persisted into September, generating a healthy breakout that lifted the on-balance volume (OBV) indicator to a new high. Look for this uptick to run out of steam as it approaches $160, setting the stage for a multi-week pullback.

A breakdown through wedge support would expose a decline into the lower blue line near $142, while the 200-day exponential moving average (EMA) rising from $138 marks a more durable trading floor. A failure to sign a post-NAFTA agreement has the power to trigger that sell-off, so current shareholders should watch current negotiations with Canada for signs of a breakthrough or a stand-off that could undermine this strong uptrend. (See also: A Trade War Could End Transport Bull Market.)

The Bottom Line

Union Pacific stock has followed through on a rally above 2015 resistance with an impressive wedge breakout that establishes higher support above $150. (For additional reading, check out: A Primer on the Railroad Sector.)

<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>