Looking up for Descartes Systems

The Stock: Descartes Systems Group Inc. .

The Trend: Canadian trucking stocks are advancing with a resurgence of bullishness in the resource sector. In the oil patch, the improved trend for oil is helping lift transports like Mullen Group , Trimac Income Fund , and Transforce Inc. .

Other transportation sector stocks are also showing signs of breaking out into new bullish trends, including railroad and marine shipping stocks. The Dow Jones transport index has outperformed the broad stock market over the past three months after logging in a 6.5-per-cent gain last week. Transports are an important focus for investors who are bullish about the economy.

The Trade: Transport logistics are an integral part of the transportation industry's drive to reduce costs and improve service. Indeed, transport companies are really in the business of logistics and supply-chain management.

Descartes Systems Group is a Waterloo-based service company that provides logistic management software solutions for the sector.

DSG is a recent Stock Trends Bullish Crossover stock, meaning the stock's 13-week moving average trend line moved above its 40-week moving average trend line.

With the exception of a brief period last autumn, DSG had been a Stock Trends bearish stock for two years, as it struggled with the rest of the market. The stock had a significant move last week as it added 9.4 per cent on high trading volume and reached its high from last September, closing at $4.30 on Friday.

The opportunity for DSG to trade above this level, and the strength of its short-term price trend, make the stock a worthy short-term trade candidate.

The Upside: Stock Trends uses trend lines to categorize stocks as bullish or bearish and to help time trades. But investors should also always look at the price pattern of a stock to determine entry and exit levels. DSG is sitting at an important resistance level now - a price point that previously sent the stock retreating. If the stock holds or advances through the $4.30 level this week, investors could buy on industry strength. If the resource sector's trend continues to be strong, DSG will benefit with along with the transport sector.

There is short-term potential for the stock to hit $5, the level it was at before its lengthy bear trend. DSG's high during its 2007 rally was $5.33, a mark that likely is an upward limit.

The Downside: This trade is risky for many reasons. The primary assumption about DSG's strength is sector related. However, investors should be wary of small cap stocks, such as DSG, where the trading volume is relatively thin. Price volatility can make this trade difficult to manage. Setting a stop (the price which will trigger a sell order) near the 13-week moving average ($3.80) trend line exits the trade at the share-price low of the past three weeks. Last week's strong volume should help the stock move forward, meaning that the stop price could be advanced to the $4.30 level if DSG is bought this week significantly above the current price.

Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to http://www.stocktrends.ca/