Shipping stocks are sporting better technical characteristics than those of the broad market and that puts them in a better position to keep moving higher.
It would make sense that companies moving products around the globe are having tough times. And as the stock market made a bottom of sorts in November, so, too did many shipping stocks. The difference is that shipping stocks are sporting better technical characteristics than those of the broad market and that puts them in a better position to keep moving higher. To be sure, the bears had their way with shipping stocks Monday morning with some falling as much as 16 percent intraday. That sort of performance certainly does not inspire investor confidence. But when we look beneath the surface, we see that little technical damage was done. For example, even including Monday morning's huge decline, TBS International (TBSI) has more than tripled since bottoming November 21. Technically, it remains in a rising trend with a series of higher lows and higher highs and is solidly above its key 50-day moving average, which itself it rising. These are the basic characteristics of a stock that is showing short-term strength.
The broader market cannot claim the same characteristics, at least not to the same degree. And further, TBS International sported heavier-than-average volume during the meat of its rally, something very unlike the broad market.
Indeed, New York Stock Exchange volume has been below average for the past two months and is still declining. Investors may not be terribly interested in the general market but they clearly have maintained demand for this stock.
In 2007, TBS was one of the superstars of the market, rising from single digits to above 70 before falling just as hard later in the year. While it is rarely a good idea to assume that the leaders in the last bull market will be leaders in the next, there is nothing in their DNA to specifically prevent them from doing so. Therefore, we can indeed believe what we see on the charts today.
DryShips developed strong technical characteristics for 2009
Another superstar from 2007 that has developed strong technical characteristics for 2009 is DryShips (DRYS). As with TBS International, this stock has a rising trend from its November low, a move above its 50-day average and volume that is well above its normal levels.
Volume on days when prices rise minus volume on days when prices fall is summed up, or accumulated, and when that sum is rising we know that the bulls have been more aggressive.
Since early December, there has been no contest as the indicator has seen a very sharp increase -- greater than it lost during the bear market. It signals and abundance of aggressive bulls and acts as a proxy for strong demand for shares. In other words, buyers are very eager to buy.
A trailing 12-month price/earnings ratio below one does not hurt this stock's attractiveness, either.
As with most sectors, not all shippers are traveling in the same currents. Alexander & Baldwin (AXB), a member of the Dow Jones Transportations Average, has not been able to demonstrate strength over the past two months.
It failed to move above its 50-day average and then broke its rising trendline to the downside several days ago. Even more damning is the swelling of supply -- i.e. interest in selling -- as indicated by its on-balance volume study. The indicator has been falling for weeks and is now at a one-year low. Apparently, money is still leaving this stock as sellers are having trouble finding willing buyers.
The bottom line is that many shippers have shown strength in recent months and are holding on to their stronger technical features even as the market pulls back. I am not looking for the start of a bull market in the sector. Rather, I anticipate something more short-term and in line with my view that the broad market still has unfinished business to the upside within a multi-month trading range.
And when the broad market finds its short-term legs again, shippers should be on the leader board.