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September 19, 2014

TrendBands and Canadian Pacific Rail

Railroads are pretty boring businesses, but Warren Buffet found the sector exciting enough to purchase Burlington Northern back in 2010. Rails generate lots of cash and have cost and structural advantages over trucking. So let's say that you began researching other rail lines in the wake of Buffet's deal and found Canadian Pacific to be interesting. Following the stock's action through 2010 and 2011 produced this chart:

Using TrendBands to time your entry... for those of us not brave or smart enough to buy a stock in free fall... would have demanded an entry after a 4-week, 40% rally. Such a purchase would not be for the timid. After chasing a 40% pop, the trader would have then watched the stock decline about 15% in the first four weeks of the trade. But sticking to the trading plan and holding firm as long as the shares did not close below the LowerBand would have paid off handsomely:

The initial purchase generated a cool 222% return over the next three years. Railroads suddenly do not seem so boring anymore...


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