Posted on June 10, 2021
Norfolk Southern (NYSE:NSC) comes under the microscope today, after a rise of 163% from her Batflu lows.
That’s not as big a jump as we’ve seen from other sectors, to be sure, but from a railroad it represents quite a surge.
That said, there’s now reason to worry.
The entire transport sector is presenting weakness against the Dow Industrials on a relative basis, and that tells a tale of a cooling economy – and market.
As for NSC, from a fundamental perspective, she’s posting as follows –
The daily chart offers ‘we the people’ ample reason to unload, as well.
We say this despite the post-Batflu pick-up in business, despite significant cost-cutting efforts (across the industry), despite the company’s adoption of a ‘Precision Scheduled Railroading’ (PSR) model, and despite dividend and buyback initiatives.
In our eyes, the chart speaks a container full.
Have a look –
And with that, we believe the deal is sealed.
Support arrives at 258 – though a break lower is always possible.
We’re playing it like this –
A Jew and His Gold recommends you consider purchasing the NSC July 16th 270/250 PUT spread** for a debit of $4.80 (6.10/1.30).
Rationale: with the trestles starting to buckle, we’ve got downside exposure aplenty, but it comes with a small price tag.
We pay $4.80 for a maximum return of $15.20.
Our maximum loss is capped at $4.80 – our initial debit.
Breakeven on the trade arrives at $265.20 – just 3% below the current share price of $273.76.
The trade is considered SPECULATIVE, due to the relatively short time frame involved (seven weeks).
Pay close attention to expiries and strikes.
The G-d of Israel is pure kindness, friends.
Know Him always.
Many happy returns,