For today’s article I will be focusing on a stock that has broken out to a 52-week high. As a reminder, when it comes to a stock hitting a 52-week high, I prefer to look for ones hitting a “NEW” high. To me, his would be a stock that hasn’t hit a new 52-week high in quite some time. In addition, and more importantly, I want the stock to have broken through a key area of resistance. This way I know that it wasn’t just any move higher, it was a key breakout.
Kansas City Southern is a transportation holding company that has railroad investments in the United States, Mexico and Panama. In the United States, the company serves the central and south central United States. Its international holdings serve northeastern and central Mexico and the port cities of Lazaro Cardenas, Tampico and Veracruz, and a 50% interest in Panama Canal Railway Company provides ocean-to-ocean freight and passenger service along the Panama Canal. KCS’s North American rail holdings and alliances are primary components of a NAFTA railway system, linking the commercial and industrial centers of the United States, Canada and Mexico.
Please take a look at the 1-year chart of KSU (Kansas City Southern) below with my added notations:
Over the last (4) months, KSU has created a clear resistance at $75 (navy). That $75 resistance meets my definition of a clear resistance level that would signify an important 52-week high breakout if KSU could manage to break above it. Well, as you can see, the stock finally broke through that $75 resistance yesterday. The stock should be heading higher overall from here.
The Tale of the Tape: KSU formed a key resistance level of $75, which was a 52-week high breakout when the stock broke above it. A long trade could be made on any pullbacks to the $75 level with a stop placed under that level. A break back below $75 would negate the forecast for the stock to move higher.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT