Canadian National Railway Surges 2.36%: What's Fueling the Momentum?

Summary
• Canadian National Railway (CNI) trades at $99.67, up 2.36% intraday
• Intraday range spans $97.73 to $100.22
• RBC Capital lowers price target to $153 but maintains Outperform rating
• Sector peers like CP and CNI show divergent momentum as railroads face mixed demand

Canadian National Railway’s sharp intraday rally has ignited investor curiosity, with the stock trading near its 52-week high. The move coincides with RBC Capital’s revised earnings forecasts and sector-wide volatility as rail operators navigate shifting freight dynamics. With CNI’s price nearing $100, the question looms: is this a breakout or a correction in the making?

RBC’s Revised Earnings Outlook Ignites Optimism
RBC Capital’s upgraded fourth-quarter EPS estimate to $2.00 from $1.95, coupled with a maintained Outperform rating, has catalyzed CNI’s rally. The firm cites strong car velocity trends and volume growth at Canadian National, positioning the railway as a potential outperformer in a sector grappling with mixed freight demand. Despite lowering the price target to $153 from $158, the firm’s projection of 6.1% 2025 EPS growth—slightly above consensus—has bolstered investor confidence. This optimism is amplified by CNR’s current trading price below its fair value, suggesting untapped upside despite the target reduction.

Railroads Split as CP Trails CNI’s Gains
While CNI surges, Canadian Pacific Kansas City (CP) lags with a 1.26% intraday gain. The sector’s mixed performance reflects divergent operational outcomes: CNR’s 68.13% year-to-date revenue growth contrasts with CP’s 13.79% 6M total return. Analysts highlight CNR’s stronger car velocity and volume metrics as key differentiators, though CP’s recent industrial park development in Houston underscores its strategic expansion. The rail sector remains underpinned by long-term infrastructure tailwinds but faces near-term volatility from shifting commodity demand and regulatory scrutiny.

Options Playbook: Leveraging CNI’s Volatility with Precision
• MACD: 0.769 (bullish divergence from signal line 0.714)
• RSI: 67.25 (neutral, avoiding overbought/oversold extremes)
• Bollinger Bands: Price at $99.67, near upper band ($101.09), suggesting potential reversion
• 200D MA: $98.07 (price above, indicating bullish bias)

CNI’s technicals suggest a continuation of its upward trajectory, with key support at $96.08 (30D MA) and resistance at $100.22 (intraday high). The stock’s proximity to its 52-week high ($108.75) and RBC’s revised guidance create a favorable risk-reward profile. For leveraged exposure, consider Invesco S&P SmallCap Energy ETF (PSCE), though its -0.03% intraday move highlights sector divergence.

Top Options Picks:
1. CNI20260116C100 (Call, $100 strike, Jan 16 expiration)
• IV: 20.85% (moderate)
• Delta: 0.487 (balanced sensitivity)
• Theta: -0.0615 (high time decay)
• Gamma: 0.0669 (responsive to price swings)
• Turnover: 11,777 (high liquidity)
• Leverage Ratio: 45.24% (moderate amplification)
• Payoff at 5% Upside: $4.98 (max(0, 104.65 - 100))
• Why: High liquidity and gamma make this ideal for a bullish breakout, with theta decay manageable given the short-term horizon.

2. CNI20260116P95 (Put, $95 strike, Jan 16 expiration)
• IV: 19.87% (moderate)
• Delta: -0.1926 (defensive position)
• Theta: -0.0150 (low time decay)
• Gamma: 0.0482 (modest sensitivity)
• Turnover: 2,287 (adequate liquidity)
• Leverage Ratio: 160.52% (high amplification)
• Payoff at 5% Upside: $0 (max(0, 95 - 104.65))
• Why: Acts as a hedge against volatility, with high leverage for downside protection. Theta decay is minimal, preserving value during sideways movement.

Action: Aggressive bulls may consider CNI20260116C100 into a break above $100.22, while cautious investors should monitor the $96.08 support level. A 5% upside scenario (to $104.65) could trigger a 4.98% gain on the call, aligning with RBC’s revised guidance.

Backtest Canadian National Railway Stock Performance
The conclusion of backtesting the performance of CNI after a 2% intraday increase from 2022 to now shows poor short-term performance. The 3-Day win rate is 46.72%, the 10-Day win rate is 45.49%, and the 30-Day win rate is 41.39%. The returns over these periods are negative, with a 3-Day return of -0.19%, a 10-Day return of -0.34%, and a 30-Day return of -0.80%. The maximum return during the backtest was only -0.07%, which occurred on the 30th day, indicating that the strategy failed to capitalize on the intraday surge effectively.

CNI’s Rally: A Catalyst for Sector Rotation?
CNI’s 2.36% surge reflects a confluence of upgraded earnings forecasts and sector-specific optimism, but sustainability hinges on maintaining volume growth and favorable regulatory conditions. Investors should watch the $100.22 intraday high as a critical breakout level; a close above this could signal a broader shift in market sentiment. Meanwhile, sector leader Canadian Pacific (CP), up 1.26%, offers a contrasting narrative, underscoring the need for granular analysis. For those seeking directional exposure, the CNI20260116C100 call option provides a high-liquidity vehicle to capitalize on a potential breakout, while the CNI20260116P95 put offers downside protection. Act now: Position for a $100.22 breakout or tighten stops below $96.08 to secure gains.