Click charts to enlargeThanks to one of our contributors, Clarke, for pointing out the pending breakout in the drybulk sector. The chart at the top is Excel Maritime (EXM), which has recently made a decisive break through its trendline and moving average. The second chart is Navios Maritime (NM), which has yet to break out, but considering it is just below its 100dma and its trendline, a breakout may be imminent.
Of more interest to us than EXM and NM are the bottom two charts. They are larger companies, and are two of the three leaders of the sector. The first one (third chart from the top) is Eagle bulk shipping (EGLE), which broke through its resistance line yesterday. That brings us to the trade we're most interested in within the drybulk sector... Diana shipping (DSX).
The bottom chart shows DSX just below its resistance line and its 100dma. If EGLE and EXM are any indication of the near term future of the drybulk sector's performance, DSX is well positioned to explode to the upside.
For those new to the drybulk sector, it is important to also watch Dryships (DRYS). We prefer DSX, but it should be known that DRYS is a major player in the space.
Another thing to note here is that while the positioning of moving averages is uniform across the world of technical analysis, trendlines may vary by user. They are guidelines that are often very influencial, particularly if they are long in the making and particularly if they are horizontal. But their influence depends on how many traders recognize them, so the less obvious and shorter ones should be given less consideration. The one we see on DSX is fairly strong, because it's been hit multiple times, and has taken nearly 6 months to form. It is not horizontal, though, like the one you see on a previous chart of Pulte Homes (PHM). These are just things to consider when reading charts. While helpful, technical analysis is an art, not an exact science.
Today, the market will no doubt break through its resistance at Dow 12750 (S&P 1400). Whether or not it will close above it or not is another story. Considering earnings season has not pummeled the market, we have to believe that if the largest potential negative catalyst for the market is not pulling it down, people are getting back into their speculative stock-buying mode. We're going to join them with some of these fun trades, like we did with DE the other day. These positions do not meet our criteria for market cap, uptrends, institutional sponsorship, popularity, etc, but they are fun trades that will not become core positions. Our core positions remain the Ag names, which have all of the qualities that we look for to constitute the largest portion of our portfolio. At this point, we are going to drop the rest of the DXD we have, which will leave us with only one Ultrashort, SMN. We are going to continue to hold SMN for as long as we hold long positions in the Ag names.
We'll have to check back later to see how drybulk shapes up. We're going to buy DSX if it breaks resistance today.
30 comments:
I am dumping FXP today (-10%), keeping a miniscule amount for next week's hope of consolidation, wherein I get a slightly better price. OUCH!!
In dry shippers you are right about DSX. The chart looks poised for a breakout today. EGLE & NM look a bit tired for today, they have run 3 days continuously, may need some consolidation. I will take profits from NM today.
Go DSX!
--clarke
Even though you expect to feel bad when selling at a loss, it actually feels like a new beginning. Dumping the losers always gives us a feeling of freedom.
We haven't pulled the trigger on DSX. We're waiting for something explosive. Maybe not today, but soon. In the meantime... go DE!
EXM seems like it's the lone wolf in the pack today with it's strength. Maybe their recent takeover is setting this one apart?
And don't feel bad about FXP Clarke...lately that thing doesn't seem to have any rhyme or reason behind it's movement. I feel much better having dumped it at a loss myself a few days ago.
And I'm curious- would FXI be of any interest to anyone now? If you give up on one end of the trade does it make sense to switch horses and take the other side? Or is everyone sick of China for the moment?
Craig
FXI did correct all the way to its long term trendline (and perhaps further). What's interesting now is that while the U.S. market is surging, China is hardly participating. If the Dow reaches its 200dma (at around 13000), we're going to reload FXP, especially if China remains weak throughout the rally in the U.S.
Alright, dumped one round of FXP at 77.25.
Sold NM for a nice little profit for a day of holding. I may have little on the table. But I am off to visit NY next week. I am not sure if I want to keep positions open then.
Have not much ammunition due to T+3.
My largest gainer is BBI so far, Go BBI!!
Snot, can you see any tech breakouts?
That seems to be where all the action is.
Just bought a small position in DSX. Looks great on a daily chart. Looking for confirmation before adding more. Sold a layer of CF at 154 which we picked up yesterday at 149. Still holding the rest of it. If these Ag names continue this run much further, we'll be getting to a point where our position in SMN outweighs our Ag longs! Hopefully Ag takes a hit soon. We're not likely to hold any CF at all above 160.
FXI, I don't think now is the time to buy.
I would wait for confirmation, when the HSI crosses 24600. Interestingly, if you have appetite for risk, you could try shorting FXP then?
Reload FXP at 200d DJI.
You all may already know this, but the DJTTR chart is showing the direction for the market, I have noticed this lately, when I was seeing levels on all the indices. It is unusually smooth and less noisy (atleast to me). The patterns are very visible. It also seems to be leading DJI.
Based on that, I am expecting DJTTR to consolidate to 6500(now at 6750) in the shortterm, before a high to 7000. Same for DJI.
Forgot to attest
--clarke
Just sold DE. Too much too fast.
Looking to dump the rest of the CF.
Haven't followed tech, so have no ideas there.
What is DJTTR? Don't have that symbol, and the 6750 number doesn't jive with DJ transports or telecom. Thanks
I thought Dow jones transportation Av. was DJTTR. No?
http://stockcharts.com/h-sc/ui?c=$djttr
Also bought a small portion of DSX. Go Ship!
Forgot to attest again. Will get myself a google ID
--clarke
Thanks Snot and Clarke, I picked up some DSX and NM today.
-fleacountry
These drybulk names haven't really broken out yet. Not with conviction anyway. Buying ahead of the breakout is a little risky, so we only bought a small amount. Just waiting for confirmation before jumping in. It may take some patience.
Wish every trade were as easy as the CF and DE trades. That was easy money.
Snot,
Could you possibly do a blog post on when to sell using technicals? I would sure appreciate it so I can learn that side of the technical trade. You sold DE too early, next stop is probably 100 according to the Oppenheimer Chief Technician this morning.
Thanks
Daryan
Yes I agree with Daryan, can you post asap on when to sell and when to buy on the blog, and the price of entry. Plus adding a section what stock you are holding and approximate % size to your overall portfolio?
And possibly put a strong buy at this price, buy at this price, DUMP now at this price.
What price does DSX consider breakout and should be purchased immediately?
Oh boy! That is a thankless job. How about some commission?? jk
I think snot has already written about entry and exit prices in trend stocks. We enter in the lower channel and start lightening up when the stock goes over the middle level.
We add short ETFs, when the individual stocks reach their upper trend.
As for DE, I have learnt it the hard way - never trust them. DE has never traded at 100. It could reach ofcourse, but if you see snot's DE chart, it is already breaching the upper trend line. We prefer to play safe and keep the money we have made.
--clarke
DSX::
I am eye-balling it.
needs to cross 28.5. In DSX's history it has never crossed 28.5 without a fight. It may be sometime next week. Looking at things today.
If it fails bailout and buyin near 27.5 for another try.
If it does cross 28.5
Later on hurdles in 29.7-30 region.
32 is a major hurdle.
I would sell at 32, at least lock in profits.
Can someone confirm these numbers. I am very sleepy. ;-( so might be aliasing horizontal lines.
--clarke
marine shipping index, has DSX,EGLE,EXM,DRYS
It has broken the downtrend. There is near term resistance, which has been a speed-bump in the past. but also resistance immediately beneath.
http://www.picoodle.com/view.php?img=/4/4/18/f_SHXm_2ea1870.jpg&srv=img32
We can hope it to breakout next week sometime after some fight and things are still rosy
attested
--clarke
Like Clarke said, play it safe and keep the money you make. We don't believe in buy and hold. We don't even believe that stocks go up. The reality is that most stocks go down. The path of least resistance is down. If a stock is going up, it's a short term move relative to its entire life cycle. There are exceptions of course, but by the time you find the stocks that are "ten baggers", they'll already be large, stodgy companies with little or no growth potential left. This idea of putting stocks away in the drawer and giving them to your grandchildren is ridiculous. GM is lower now than it was in 1965. You would think that by inflation alone, it would be higher. Holders of GM stock argue that they've received a dividend for the past 40 years, so they are ahead. They never factor in what land cost in 1965 relative to what it costs today. The way we see it, they just lost money every year for the past 40 years.
As for when to sell, there is no hard and fast rule. You don't have to sell all at once. If we make an instant profit in a stock, we take some off the table. An instant profit is a gift. If you were to make just 1% a week, you'd be making 50% a year... an outrageous return by any standard. The key to trading is not big wins, it's consistency.
How often have you bought a stock and made a nice profit only to watch it all disappear? Our approach is to sell when the stock makes enough of a move that we feel confident that we'll be able to buy the stock back cheaper in the future. Whether that time comes in a few hours or in a few weeks is irrelevant. We bought DE at 90.25? It went up to 94 and we figured that based on its chart's history, that was quite an impressive one day move, so we sold. It's not that we thought that it topped out, but that we figured we'd be able to buy it back for the same price or less at some point. Now it's at 92, so maybe we'll get back in later today. While a four point move may not allow you to become a millionaire, it's actually a huge move when you think that the company's market cap just grew 5% in a few hours! Somewhere out there, someone made a few hundred thousand or a few million off of that 5% move, and they will want to keep some of that profit, so you can expect selling.
There are too many factors that go into trading. You can't really explain it to someone. Just don't get greedy, and think in terms of consistency. If you can profit consistently, no matter how small, the numbers will soon get much larger.
By the way, the lines in a trend channel are only a guide. They do not give you hard and fast buy and sell prices. When we want to buy a stock at one of the lines of the trend channel for $40 let's say, we watch it intraday and as long as it continues to trade lower below a downtrending intraday moving average, and other stocks in its sector are weak, and/or the market is weak, we just wait and see. The stock we wanted at $40 may just give us an even better opportunity at $39.
The trend channel's lines are best for allowing you to scale in and out of positions to keep reasonable amounts invested relative to how overbought/oversold they are at any given time.
When we buy a stock, we start with a small position. We usually are trading 5 or 6 stocks at a time. We are not trying to make a killing on any one of them. We're just trying to make the net effect of the trades result in a profit. We don't bet the farm on any one thing.
Our approach to trading may not work for others. Personality and tolerance for risk are very individual things. You have to discover what works for you. There is no Holy Grail. Through trial and error, we've only been able to find what works for us.
As for our current portfolio, it is pretty small now, as we've scaled back a lot with the Dow nearing its 200dma (a lot sooner than we thought).
We took a lot of profits and are down to minor positions in DSX and SMN. At this point, we're wishing for a decent Ag correction. SMN will become profitable, and we'll be able to put greater portions of cash to work. Until that correction happens, any long positions here are small and short lived.
If DE can break below 92 and make a quick drop, we're going to reload it. It's wishful thinking, but would be nice. Normally we'd buy back in at 92 considering how much it sold off already, but with the Dow approaching the 200dma, we're not willing to pay up for anything.
Looks like DE just doesn't want to give any ground below 92 this afternoon. And with CAT overheating and POT climbing the north face of K2 I tend to agree that at a minimum some sort of pullback in the near future is inevitable.
Snot,
Thanks for your efforts to share your TA expertise with the others - for me it's a great value - not so much for particular Name/Buy/Sell signals, but for very good and consistent explanation WHY you think so. And, of course, supplied charts with lines you put on are great benefit for understanding.
This place is way more reasonable and friendly than LDK message board on Yahoo :-)
I have question to you - in some of your posts you mentioned several times that positions you trade should meet some criterias like "volume, market cap, uptrends, institutional sponsorship, popularity, etc..."
Can you try to explain your requerements for those criterias with little bit more details?
Thanks again,
Andrey
Andrey,
We never just buy and hold a stock. We're always scaling in and out of them, even the best ones. If we find a stock we really like, we'll buy a core position and trade in and out around it, holding the core until we feel the run-up in the stock has gotten out of hand. For those stocks that we plan on holding in this way, we have a defined set of criteria. But with other stocks, we just enter small trades here and there based purely on TA. Those stocks do not need to meet any criteria, because we're only holding them for a few days, if that.
When looking for a stock that will become a core position, we look for
(more or less in this order of importance):
1. High relative strength (uptrend)
2. New highs
3. Market cap of 4B min
4. Avg volume of 1M min
5. Institutional Sponsorship
6. Popularity - media coverage
7. Growing earnings
8. A "story"
Valuation doesn't matter to us. Overvalued stocks generally go higher and undervalued stocks generally go lower in the short/intermediate term. Value buying only works if you plan on holding for a long time. Even then, there are no guarantees that an undervalued stock will ever be "properly" valued. Stocks are actually worth many times less than what you pay for them, so there is really no reason for any of them to go higher based on valuation alone. They'll only go higher when people want them, and people only want them when they think they'll go even higher. For that, you need media coverage, and a believable story.
Fundamental research isn't that important either, because if a stock meets the top 6 criteria, then they must have #7 and #8.
Buffett says that the stock market is a voting machine in the short term, and a weighing machine over the long term. We use it as a voting machine... guilty as charged.
Snot,
Thanks again for the explanation. After several month of experience in current market conditions I totally agree with your approach (vs buy-and-hold approach). Once I get in TSL/LDK for valuation reason at wrong time - and it turned out to be more than 3 months of disappointment for me - still a bit underwater :-(
Market is not a place to fall in love - only for money...
About Dry bulks - I'm curious why you choose DSX to be favorite among peers? Last year I think it was DRYS who dictates the mood in the sector. Any specific reasons for your choice?
Andrey
hi snot i have noticed the begining of the shippers move .i made some money on tbsi .sold a bit early though .i was thinking with the chinese company doing the deal with pot ,and all the steel stocks ripping .how are all these commodities ei ,food steel iron ore ,fertilisers and goods going to get to where they are going ?
i was thing by boat .
just one question why do you prefer dsx to say exm ,drys or tbsi ? thanks in advance
Paul & Andrey- why don't you actually READ Snot's post on the dry bulk sector before you ask a question that was ALREADY ANSWERED IN IT.
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