Canadian Pacific Railway Limited, through its subsidiaries, operates a transcontinental railway in Canada and the United States. The company provides logistics and supply chain expertise services. It transports bulk commodities, including grain, coal, fertilizers, and sulphur; and intermodal traffic comprising retail goods in overseas containers that can be transported by train, ship, and truck, as well as in domestic containers and trailers that can be moved by train and truck. The company also transports merchandise freight consisting of finished vehicles and automotive parts, chemicals and plastics, crude oil, and forest products, as well as metals, minerals, and consumer products.
Take a look at the 1-year chart of Canadian (NYSE: CP) with the added notations:
CP started its current decline in April, but in August the stock started a sideways move. During the sideways move, CP tested the $130 level (red) as support on two separate occasions, thus creating an important 52-week low support at that mark. Now that the $130 level has been broken, the stock should be taking another significant leg lower.
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The Tale of the Tape: CP broke a key level of support at $130. A trader could enter a short position on any rallies up to or near $130 with a stop placed above the level. If the stock were to break back above the $130 level, a long position might be entered instead.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT