New Lionel O-60 Command Switch malfunctioning

Here is the super scientific approach I took with an 036 switch doing the same thing; took the back off touched all of the wires and now it works fine. Something must have been slightly loose but no idea where because much like your inspection everything looked fine.

JFYI Sometimes the lugs are tightened down on the wires insulation and not on the bare wire Check that on both ends also when I get them new the lugs are very loose tighten everything up. Nick

Could it be the controller?

The most common issue internally is the two limit microswitches.  I've had several I had to build up the nub on the switch for it to function properly.

If it's not what John is suggesting, it sounds to me like either the controller or the back of the turnout is wired incorrect. Why don't you take a pic of both and post it, then we can verify the connections for you. Nick

I checked all the wiring at the controller and the switch by removing it and reinstalling it making sure there was good contact. No change. I think it may be a bad microswitch. I shipped it back to Lionel today.