Dry bulk shipping companies have reason to party
Dry bulk shipping companies (whose vessels haul iron ore, coal, and grain) have been partying since mid-summer! Many shares like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Holdings Inc. (NM), and Safe Bulkers Inc. (SB) have been rallying more than 25%, outperforming the overall market like the S&P 500, Dow Jones Industrial Average, and Nasdaq. Navios Maritime Partners LP (NMM) went flat since most of its contracts are priced at or above current market rates and some don’t even mature until five years later.
Share pullbacks are normal in an uptrend
Some analysts raised cautions that the recent run-up in shipping rates is just temporary. But it doesn’t look like the upward momentum is over—at least not yet. The long-term trend remains positive. To see why, I’ve included (updated) several indicators that are key drivers of dry bulk shipping companies’ performance.
That’s not to say we won’t see pull-backs (or a sideways consolidation) from time to time. As share prices rise, there’s bound to be people who want to take profits, as we discussed in prior series. Sometimes, the market could get ahead of itself. However, that doesn’t happen often in the initial stages of a bull trend. That most often occurs during the last stage, when everyone gets bullish and the market prices in all the “positive” news—like what happened to Apple back in 2012.
Because not everyone is bullish, there’s less risk that share prices will rise significantly ahead of fundamentals. Think of the stock market rally since March 2009. While it did rise rapidly, it wasn’t all green. We could still see large pull-backs of 5% or more—depending on the stock. Stocks that have risen by a large amount are often more volatile and could experience large declines. These pullbacks could frighten investors, which is a risk if they don’t recognize that the long-term trend remains up and sell at absolutely the worst time.
Sometimes, less is more
Those looking to get into action right now are probably thinking “Should I get in now or should I get in later?” If they know how to use technical analysis to profit from these short-term trends that works for them, they could use this method to find good entry points. For those who don’t, they can learn technicals, find out how to value companies, or develop a strategy that works for them.1
A point that every investor or trader should keep in mind, though, is that not everyone always profits from buying at the exact bottom and the selling at the exact top (not even technical analysts). If they have diversified their portfolio and set some cash aside for future opportunities or for buying when a company becomes more attractive, it’s less likely they’ll make a big mistake. Sometimes, less is more.
- A word of caution here: technicals aren’t just about charts and patterns. It’s critical to understand the theory and psychological footprint behind such indicators, whether you agree or not, and find the ones that make most sense. Of course, it has to work. ↩
- Part 1 - Share price pull-backs are normal in a dry bulk shipper uptrend
- Part 2 - We just need decent ship orders for dry bulk shippers to recover
- Part 3 - Why a slower construction level fall is good for shipping rates
- Part 4 - Why a scrapping activity downtrend remains positive for shippers
- Part 5 - Cape-fleet growth finally breaks 5%, good for shipping stocks
- Part 6 - Iron ore shipments from Brazil are rising, but investors beware
- Part 7 - Why low iron ore stock at Chinese ports is good for shipping rates
- Part 8 - Why falling iron ore and steel prices are helping shipping rates
- Part 9 - Why traders expect iron ore prices to fall, benefitting shippers
- Part 10 - Vessel prices fell in July and August, but may not be negative
- Part 11 - New build prices recover: Long-term positive for dry bulk stocks
© 2013 Market Realist, Inc.