After a long period of decline, the shares of Union Pacific Corp (UNP:US) found a temporary bottom on August 24. The 3-wave corrective advance (marked A-B-C on the chart) pushed the stock price just short of reaching the $100 handle. In the following months UNP:US resumed its bearish trend tracing out a 5 wave impulse down to the high $60’s. The fifth wave indicated a weakening in the downtrend as new lows were not confirmed by similar declines in RSI (divergence marked in the bottom panel). We began expecting a potential move higher.
On February 4, with a volatile move to the upside UNP:US breached the 0-4 line signaling an imminent bullish reversal. Buying pressure continued in the subsequent days until the first target was reached on February 17. Contained by the Reaction line, bars posted alternating closes (mirror bars). Price is now at a juncture. It can continue its leg higher and extend the advance marked “A”. The price target in this case will be the next down sloping line. Alternatively, price can bounce away from the Reaction line. This will hint that the move “A” is complete and wave B down is underway.