The shipping stocks along with the baltic Dry Index continues to soar; as a result the latter pushed through its weekly 200ma.
So, what gives?
Many believe the course correction has to do with President-Elect Trump’s initial impact on financial markets. The recent bullish reaction has been an eye-opener,to say the least. The yield curve is steepening, copper prices have been soaring and the broad has rallied. Mundane stocks in most sectors have been moving relentlessly higher. Most sectors have been affected, with the exception of technology.
That said, one of the most bewildering rallies has been in shipping stocks, particularly small dry bulk shippers. Short positions are being squeezed, sending shares ever higher, in ways that are not linked to their fundamentals.
Be careful if you are trading these stocks. Scale out as the stock rises away from its moving averages, as mean reversion is inevitable.
Below is a partial list of the shippers that continue to show up on the NYSE traded exchanges “Movers” list.
The NYHL New Highs minus new lows index is a reflection of NYSE composite traded shares. It is a barometer of breadth, in that it tracks expanding 52 week highs. With the exception of the first week of November, prior to the election, we have seen this histogram above the zero line since March. That’s bullish.
As we trade near the upper Bollinger Bands, we have been anticipating that NYAD, lower panel, would break back above the descending trend line. If it continues higher, this would be another confirmation of price action. A flag is a welcome sign, as consolidation takes care of excess.
While we do not recommend chasing shippers now, there may be opportunities over the coming weeks as profit taking sweeps through these overvalued shares. If this is a long term trend change, we can expect to see a low pivot very soon. This will be our signal to look for continuation.
Finally, we will be watching, technology shares (XLK), as it is by belief that fund managers were positioned for a Hillary win. These same fund managers had to liquidate tech shares to buy the infrastructure trade.
Considering the above, it should be no surprise that we are anxiously awaiting a recovery in technology. We need the catalyst(s) to push the indices higher. We would also like to see a recovery in XLP, XLU and IYR.
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