After Worst Week in 18 Months, This Transport Stock Could Be a Bargain

The Dow Jones Transportation Average (DJT) is set for a fifth straight loss

Jul 21, 2017 at 12:42 PM
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While the Nasdaq was enjoying its longest winning streak in two years, the Dow Jones Transportation Average (DJT) is pacing for a fifth straight loss -- and its worst week since the Brexit backlash of June 2016. Among the transports stocks that have taken a tumble this week is CSX Corporation (NASDAQ:CSX), which is pacing for its worst week since January 2016, after the company on Tuesday offered lackluster expectations for full-year profit growth. However, if recent history is any indicator, CSX stock could be a bargain for bullish traders right now. Below, we'll take a look at the shares, and outline why CSX options are attractively priced right now.

CSX stock has more than doubled from its early February 2016 lows, and hit an all-time high of $55.47 as recently as July 13. In the wake of the shares' post-earnings slide, CSX stock is now within one standard deviation of its 80-day moving average -- a "buy" signal in the past. According to Schaeffer's Senior Quantitative Analyst Rocky White, the last five times CSX stock pulled back to this trendline, the shares were positive 100% of the time one week later, with an average return of 2.7%. Looking out a month after a pullback, CSX was higher 80% of the time, averaging a gain of 6.62%. A similar rally from current prices -- the stock was last seen trading around $50.93 -- would put CSX around $54.30 -- within a chip-shot of record highs.

CSX stock chart

The equity's 14-day Relative Strength Index (RSI) now stands at a low 33 -- on the cusp of oversold territory, suggesting a short-term rebound could be in the cards. And for options traders expecting a near-term bounce, CSX's contracts look attractively priced. Specifically, the security's Schaeffer's Volatility Scorecard (SVS) of 87 indicates that CSX has handily exceeded options traders' volatility expectations in the past year -- a boon for premium buyers.

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