Two Ways to Chug Higher in Union Pacific

• Posted by Greg Harmon
• on June 13th, 2016

As the S&P 500 flirted with new all-time highs last week and the Dow Jones Industrial Average worked back to 18,000, one area continued to struggle: Transports. The Transportation Average started rolling over in April of last year, finally reaching a bottom in January. The broad market pulled back and bottomed then too, but as the market rebounded, Transports remained well below their highs.

One railroad stock seems to be trying to change that. Union Pacific ($UNP) had a rough patch like all of the transports. But since making its own bottom in January it is continuing higher. The latest movement off of the 50 and 200 day SMA, as shown in the chart below, has the price right back at the April high. A series of higher highs and higher lows, has this stock in an uptrend and ready for another new higher high.

The break of resistance would confirm a Cup and Handle pattern, with a price objective to 112. Momentum indicators support a move higher too. The RSI is in the bullish zone and the MACD is rising. The Bollinger Bands® are opening higher to allow more upside. And there is a Golden Cross that printed in the chart just two weeks ago. Look for a break of resistance to enter, and then use that resistance zone as a stop.

The company reports earnings next July 21st and the options open interest up until that week are biased to the upside as well. For the week of earnings the at the money straddle is pricing a $5.50 move. Another way to trade for a break higher would be to buy the July 22 Expiry 89.5 Calls for about $2.85 and then sell the same expiry 84.5/95 strangle for $1.85. The strangle is about the width of the options implied earnings move.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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