Shares of Union Pacific (UNP) - Get Report are beginning to show signs that a significant low may be in place. The stock has been under extremely heavy selling pressure throughout all of December. This distribution wave has resulted in limited downside past the August low. Union Pacific may have reached "sold out" status of late, giving patient investors a very low-risk entry opportunity.

The recovery rally off the Aug. 24 low erased all of Union Pacific's loses incurred that month. The stock completely stalled out in early October just above the $98 level. After retesting the early October peak later in the month, Union Pacific collapsed. This steep selloff drove shares more than 24% lower in just under eight weeks. The final phase of this down leg came early this month as the stock was hit with a five-day losing streak. Volume during this stage marked the most aggressive selling UNP had undergone in years. Since hitting a bottom near $75 on Dec. 8, the stock has firmed up as a divergent MACD has developed. For Union Pacific investors, this is certainly an encouraging sign.

Through year-end, Union Pacific bulls should consider the stock a low-risk buy near the $76 area. A close back below $74 would take out the current December lows while putting a severe dent in the three-week basing process. On the upside, a close back above last week's high near $79.50 would clear the upper band of the bearish channel that has been in place since the late October breakdown. Union Pacific would take on a much more bullish tone if a break through this trend line attracted heavy trade.


Click here to see the below chart in a new window

Image placeholder title

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long UNP.