Now rail shipments of oil are down because the low price of oil is forcing many of the oil fracking companies to cap off their wells and wait for higher prices to return. But all that may be turning around.
If you're a pure fundamentalist then you've probably come to the conclusion to stay away from these companies until the fundamentals begin to turn up. In fact that's probably the only real way to know that the railroad business has improved. But some investors begin to anticipate a recovery and start to buy the shares ahead of the improving fundamentals.
Sometimes they're right and sometimes they're wrong. That's why they often buy small positions and add to those positions as additional information becomes available. On price charts that's often seen as a bottoming as the fundamental sellers are offset by the technical buyers. As the number of sellers decreases and the number of buyers increases, the stock price begins to rise. It's simple supply and demand in action.
Normally I wouldn't get too excited by any one individual company bottoming but when I see a whole industry beginning to bottom and start to turn up even though the fundamentals haven't yet improved, then I suspect somebody knows something that I don't. Smarter investors than me are buying into an industry and I tend follow their lead and start a small position. And then I actively monitor the charts.
Below you will see the charts of three major US railroads and two Canadian railroads. The Union Pacific, Norfolk Southern and Kansas City Southern Railroads are all US railroads and they are beginning to turn up nicely, confirming that this industry is likely improving and that the fundamentals will probably start improving in the next six months. If this is not readily evident on the price chart alone, notice that the MACD and the MACD Histogram are leveling out and turning up. Notice also that the Stochastics are beginning to turn up and pierce through the twenty line. Finally the RSI is flirting with the oversold territory and also beginning to turn up. That's a lot of confirmation.
Additional confirmation can also be seen on the price charts of the Canadian National and Canadian Pacific Railroads, as can be seen below. It really looks like from these charts that confirmation is coming in from both sides of the border. That's always a good sign.
I believe that this is one of those situations where the technicals may be out front of the fundamentals and that this may be one of those opportunities to own some great companies at some great prices. I already own shares in some of these companies and I intend to use this opportunity to load up on even more of these shares in anticipation that these securities are heading higher over the next six months.
I may be wrong and getting in too early, but even if this isn't the bottom I believe it's at least near the bottom. And since I like to buy great companies that grow their dividends over time when they are relatively inexpensive to buy, and then hold those companies for years, I think I'm probably making a good decision. Wish me luck!