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Ongoing Trade War Might Derail the Technical Argument for CSX Stock

Josh Enomoto

If you’ve followed Wall Street’s narrative throughout this year, I’m sure you’ve asked a question or two about CSX (NASDAQ:CSX). Specifically, why is the CSX stock price — leaving aside July and August’s volatility — doing so well? After all, we’ve been hearing so much about the U.S.-China trade war and its impact on our economy. In that case, shares of the transportation giant should drop.

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Yes, the CSX stock price did decline in the summer months. Between the first of July and the end of August, the company’s market value dropped a sizable 14%. Not coincidentally, that period covered the time when President Donald Trump threatened new tariffs against China. Unsurprisingly, the tough rhetoric rattled investors’ nerves, sending the benchmark indices lower.

But then a curious thing happened. Not known for tactful, diplomatic behavior, Trump dialed down some of his acerbic language. He’s essentially called a temporary truce in the trade war, delaying an anticipated tariff bump-up by two weeks. Labeling it as a goodwill gesture, the president, according to his words, delayed the tariffs to allow China a distraction-free celebration of its republic’s founding.

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So, does this signal a buy for economic bellwethers like CSX stock? Apparently, many market experts think so.

For example, Oppenheimer technical analyst Ari Wald suggested that the markets are moving off of “cyclically oversold levels.” Wald also noted that global equities “are beginning to base in a move higher.”

Of course, as a technical analyst, Wald interprets the charts using standard or accepted methodologies. I’m fine with that. However, I can’t help but notice that when it comes to transportation, technical interpretations have been deceiving. That makes me question the upside narrative for the CSX stock price.

Transportation Stocks Have Been Bull Traps

Although I’m a proponent of technical analysis, I’m also objective about it. Certainly, I can understand the criticisms that this methodology appears subjective. What appears a breakout pattern to one analyst could be a breakdown warning for another.

For CSX stock and the transportation complex, some analysts have made interesting calls. For example, Investopedia contributor Casey Murphy laid out his case for various transportation stocks. Since he published his analysis near the end of June, we can back-test his chart interpretations.

Before we begin, I want to make clear that I’m not trying to shine a spotlight on Murphy. Rather, I merely want to illustrate how reasonable technical assessments can sometimes go sour.

Let’s start with the SPDR S&P Transportation ETF (NYSEARCA:XTN). Murphy suggested that traders may put a $71 price target on XTN. Although the fund temporarily moved higher, XTN has been very choppy. Since his publication date, the fund has been mostly flat.

Next, Murphy analyzed Hertz Global (NYSE:HTZ). Noting HTZ’s sideways movement, he suggested that the broader price action is trending higher; thus, traders may have set their price target for $30. Instead, HTZ moved lower to under $15.

Finally, we have Kirby (NYSE:KEX). Here, Murphy saw a buy signal called a “golden cross.” Unfortunately, KEX wasn’t so golden because it broke down quite severely. Only a recent rally has brought KEX to near break-even with the price at time of publication.

Again, my point is not to gloat. Instead, I think we should be very careful in how we interpret the CSX stock price.

Technical analysts love talking about how they’re market agnostic — that price is the only thing that matters. But I disagree. The fundamentals matter too, and that’s probably why the transportation stocks’ buy signals failed.

Approach CSX Stock With Healthy Skepticism

Generally speaking, I think investors should approach CSX stock with healthy skepticism. That’s because they should approach the broader markets with the same sense of doubt.

Mainly, we’re well over 400 days into the U.S.-China trade war. While Trump boasts that the U.S. has suffered no damage, there’s no way that could be right. For instance, Moody’s Analytics estimates that the trade war resulted in 300,000 fewer American jobs. That figure could jump to 450,000 jobs if the conflict continues.

That’s a matter of economics 101. If you have poor relations with the world’s second-biggest economy, you will suffer. That does not augur well for economically sensitive names like CSX stock.

So, what’s the play call here? I’d sit this one out. Although the recent surge in the charts is interesting, the fundamentals contradict this enthusiasm. If push comes to shove, I’m going to go with what makes sense.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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