Union Pacific May Underwhelm; Here's How to Trade It

Immediately after the election, Union Pacific (UNP) exploded to the upside. The stock gained 3.7% on Nov. 9, its best single-day rally since April, with the help of its best upside volume of the year.

This powerful ramp sparked a fresh rally leg that carried shares well into new 52-week high territory. By Dec. 7, Union Pacific stock was up more than 20% but was beginning to show signs of exhaustion.

Union Pacific spent the bulk of December developing a bullish pennant. This healthy consolidation allowed the stock to work off most of its overbought moving average convergence/divergence setup. Unfortunately, the stock appears to be ending this positive setup with a downside break which will likely lead to lower prices in the near term. Until this fresh pullback fully plays out, Union Pacific may prove to be a painful long.

For patient investors, a pullback from the December high will provide a low-risk entry opportunity. During the post-election rally, Union Pacific left behind layers of support. The initial support zone is near $99. This key zone is marked by the stock's October high as well as the 50-day moving average. The one-third retracement level of the entire post-election rally is also in this area. Union Pacific bulls should view a fade back down to the $99 area as a buying opportunity.

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

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