CSX Company (CSX) trades lower on Friday after beating estimates for fourth-quarter 2020 revenue and net income, posting earnings of $1.04 per share on a 2.1% drop in revenue to 2.83 billions of dollars. Coal was hit hard in 2020, weighing on shipping volume already reduced by the COVID-19 pandemic. The Florida-based railroad operates 20,000 miles of route in 23 states east of the Mississippi River, mostly in population centers.
Kansas City South (KSU) released a similarly mixed premarket report, booking earnings of $1.89 per share, $0.03 shy of estimates. Revenue fell 4.9% year-over-year to $693.4 million, which was also worse than expected. This north-south rail operator typically enjoys heavy cross-border traffic, but the pandemic has also weighed on the Mexican and Canadian economies, reducing shipping volumes.
Key points to remember
- CSX and Kansas City Southern saw quarterly revenue declines.
- Both stocks are trading near all-time highs ahead of strong rallies in the second half.
- CSX failed a January breakout, waving a red flag for the rail industry.
The decline in quarterly revenue is consistent with that of Union Pacific Corporation (UNP) fourth quarter report last week, highlighting the transportation sector’s vulnerability to economic upturns and downturns. However, all three stocks are trading near all-time highs despite the results, with investors looking ahead and expecting economic growth to explode in the second half as the pandemic takes its course.
A cyclic action is a stock whose price is affected by macroeconomic or systematic changes in the global economy. Cyclical stocks are known to follow the cycles of an economy through expansionpeak, recession, and recovery. Most cyclical stocks involve companies that sell consumer discretionary items that consumers buy more during a booming economy but spend less during a recession.
CSX Daily Chart (2018-2021)
A powerful uptrend peaked mid-$70s in the summer of 2018, giving way to range-bound action that featured two escape failure attempts through February 2020. The stock surpassed the 2018 low of $58.47 in March, stopping at a three-year low in the mid-$40s. The ensuing wave of recovery made a round trip to the Q1 peak in September, before a November breakout that hit $93.70 a few sessions later.
The stock then fell back into a trading range, only to break out again in early January. However, it has retreated since its peak on January 11 and fell into the upper $80s, signaling a failed breakout. The decline also reached 50 days exponential moving average (EMA), which should act as Support for the second time in three weeks. Sell signals will erupt if this level breaks, paving the way for a decline in the 200-day EMA to near $80.
South Kansas City weekly chart (2013-2021)
A multi-year uptrend broke above $125 in 2013, giving way to a broad double top pattern that broke lower in 2015. Selling pressure hit a four-year low in the first quarter of 2016, leading to a slow rise that eventually made a round trip to the previous high in August 2019. The stock broke in October and peaked at $178 in February 2020, just before a vertical decline that failed to breakout.
The ensuing wave of recovery hit the Q1 high in July, triggering an immediate breakout that quickly stalled near $190. The stock broke again at the end of the year and added more than 10% to the all-time high on January 8 at $222.63. It’s trading around six points below that level ahead of Friday’s opening bell, but the mixed quarter likely won’t attract the firepower needed to propel a rally to a new high.
A sell signal is a measurable condition or level at which an investor is alerted sale a specific investment. Sell signals can be generated by various methods, such as a predetermined percentage drop in the value of the asset, a technical indicatora fundamental change in the asset or a trailing stop loss. The sell signal can automatically close the trade, as in the case of a stop loss orderor investors and traders may need to manually close the position after receiving the sell signal from their method or strategy.
CSX and Kansas City Southern confirmed a mixed quarter for the rail business, with pandemic headwinds still affecting shipping volumes.
Disclosure: The author held no position in the aforementioned titles at the time of publication.