US President Donald Trump has repeatedly criticized the North American Free Trade Agreement between Mexico, the United States and Canada. The White House recently announced that the deal would need to be renegotiated to include better terms for the US. What that means exactly remains to be seen, hopefully within the next two weeks, but given Mr. Trump’s “America First” rhetoric, a US withdrawal from NAFTA still cannot be ruled out.
According to Reuters, Canada’s railway companies will be among the most heavily hit if the agreement collapses. The Canadian National Railway Company (NYSE:CNI) is headquartered in Montreal and operates a 20 000-mile railroad network spanning from Vancouver to the Gulf of Mexico. If we take a look at its stock chart through an Elliott Wave perspective, it looks as if the market is already anticipating a bad outcome.
The monthly chart of CNI stock shows the price’s entire advance from $3.18 in November 1996 to its all-time high of $85.73 three months ago. Its shape is what immediately grabs our attention, since it looks like a textbook five-wave impulse with an extended third wave.
This pattern spells trouble for Canadian National Railway shareholders, because the theory states that every impulse is followed by a three-wave correction in the opposite direction, whose natural target lies near the termination area of the fourth wave.
In CNI stock’s case, this means the bears could cause a plunge to roughly $45 a share, erasing nearly 40% of the company’s market capitalization in the next few years. The negative outlook is also supported by the Relative Strength Index, which depicts a strong bearish divergence between waves 3 and 5. We do not know how the NAFTA negotiations will develop, but the chart of the Canadian National Railway company does not look promising, to put it mildly.