A rectangle pattern has formed in the chart of Kansas City Southern (KSU).  If the pattern is broken, a breakout or a breakdown could occur.

KSU is a transportation holding company. It focuses on the growing north or south freight corridor connecting key commercial and industrial markets in the central United States with major industrial cities in Mexico.

The company is benefiting from increased efficiency and reduced costs due to its precision-scheduled railroading model. As economic activities increase, KSU is seeing a gradual recovery in volumes. Management expects 2021 revenues to double from 2020 levels.

While KSU has only $188 million in cash, its cost cutting actions have led to just $6 million in short-term debt and a current ratio of 1.3. The company is also quite profitable with a net margin of 23.4%.

Earnings are up 21.1% over the past year and are expected to rise 5.1% this quarter. The stock is trading at fair valuation with a forward P/E of 23.36. The stock has been consolidating in a trading range this year leading to a Momentum Grade of C in our POWR Ratings.

Take a look at the 1-year chart of KSU below with added notations:

Chart of KSU provided by TradingView

After hitting new highs back in December, KSU moved into a sideways trading range and a rectangle pattern was formed. The stock has formed a resistance area around $220 (red), and a level of support at $200 (green).  At some point, the stock will have to either break the resistance or the support.

The possible long position in the stock would be on a breakout above $220. The ideal short opportunity would be on a break below $200.

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KSU shares were trading at $212.77 per share on Wednesday morning, up $2.20 (+1.04%). Year-to-date, KSU has gained 4.51%, versus a 4.20% rise in the benchmark S&P 500 index during the same period.

About the Author: Christian Tharp

I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing. More...

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