Canadian National Railway Company (CNI)
(4/16/07)

Last week, Warren Buffett generated some interest with his purchase of shares in a variety of railroad companies.  A number of these companies have been on a tear for the past couple of years, and the earlier corrective pullbacks in a bunch of them suggest opportunities still exist.  In screening for one whose price was still reasonable, I came across CNI, and liked their chart for some near-term upside.

The long term wave pattern for CNI suggests that it completed a Wave (4) triangle on March 14, and has been rallying in a new Wave (5) advance.  The stock popped following the Buffett announcement, which was suitable for launching Wave 3 of (5).  We'd be looking for a minimum top for Wave 3 between 49.24-49.78, with the latter most ideal.  A Wave 4 pullback should be expected, but it should not really be sharp if this is the pattern in effect.  Prices should also not get below 46 assuming this is a Wave 3 rally, so you may want to limit your risk to a few ticks below.  The wave model suggests the 51.17 all-time high of March 2006 should be retested and violated, with a projected high in the 52-53 area.  It could exceed this, but the long, near and short-term models all tend to converge within this zone.  If you don't mind some risk, you could get in at current levels, or wait for the Wave 4 pullback, as preferred.

For an option play, you can consider the October 2007 $50 Call (symbol CNIJJ), which was selling for $3.10 when we last looked, and with the Delta at 0.54.  

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