Back on the 21 of Dec 2011 we expressed the opinion that one should stand aside. or perhaps even get short this stock at roughly $45, see the red arrow;

We were wrong. Now 8 months later the stock is higher by a single dollar having been below that $45 level for most or even all of that time. It is not at all clear what the pattern is but I suspect that somehow a triangle is hidden in this chart. In any event the upside is very limited as becomes clear looking at the following charts;

As can be seen from the Bigchart the stock is right on the upper boundary. Looking at it from the 1980-ties, the stock is now trading above a channel that has defined it for most of that time. In 1980 20 year bonds were close to 20% in Canada at which rate your money more than doubles every 4 years (rule of 72). There are 6 such periods into 2000 so by that time you should have had 64X your money (abstracting from taxes , dividends and other minor considerations),and there are still 4 such periods left. Calculating value differently, by simple comparing prevailing rates, then 20% , now 4% the stock should be roughly 5x more valuable all other things being equal. It is not,just 4.5x.  Still a sell in our opinion.

For the big picture, see the previous blog from December 22, 2011, about a month ago. It hit the anticipated target with less than 1/2 dollar to spare and then started on it’s merry way down. These are not insignificant  moves as they are in the order of 10%. The next one should be much larger.  All the analysts babbling on BNN are not in the least concerned about this stock. Todays news and action was just a blip on the way to financial nirvana. The greatest accolades came from the dividend chasers who commented that the return is now better than yesterday. On that basis all things bad are good so why worry. That this stock traded once upon a time not too long  at $9 after an event that was then considered a major betrayal (they cut the dividend after repeatedly promising not to) seems to be entirely forgotten. Our view; stay out!

Late October we called for a further rise in the stock to complete a B-wave into the heavens. It is doing exactly that and is now close to it’s destination:

We are approaching the upper trend line and should hit it in a matter of days. My best guess is around $45 or just a little higher. We are now in the 5th wave of the thrust out of the “megaphone” and it is already almost equal to the 3d wave in that leg.

This is of course a blue chip stock and it’s earnings are regulated by government edict so one might wonder what could possible go wrong. Fundamentally earnings per share have been dropping and the tolls levied on users have been rising at an alarming rate whereas put through volumes have been declining.  There are major cost increases and  the delays in the new pipe through the US are not helping at all. Furthermore one might well wonder why a utility that is regulated (NEB Nat. Energy Board + provinces) should be allowed a return of 9% in an environment where 10-year Gov. bonds earn 2%. It recently moved into the solar business where it has little experience.

Trans Canada Pipe just does not want to budge. Since June or so it hangs around this level but it has developed a fairly clear B-wave and should collapse once complete. Here are the charts;

The single 5-wave sequence down, followed by an irregular B-wave up , reaching for a new and false high, is a very common pattern and promises a fairly swift collapse once the B is done. It needs only a minor 5th. We will see.