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Published: November 19, 2009
Look who finally joined the economic
party...
The Baltic Dry Index (BDI) tracks the cost
of shipping a variety of commodities overseas, and it's one of
the most reliable economic indicators available anywhere.
There's a direct correlation between the demand for goods and
the cost of shipping them overseas. As demand increases,
shippers have less excess capacity and can charge premium rates
to ship goods. When demand falls, shippers cut rates to attract
whatever limited business there is.
After languishing for most of this past summer and fall, the
Baltic Dry Index has all of a sudden come alive and is trading
at a new high on the year. Yes, it's still well below the 12,000
level it reached in mid-2008. But the move over the past couple
months is nothing if not spectacular.
As a skeptic, I might argue shipping prices have increased
largely in response to China buying every raw commodity it can
get its hands on. As a believer in the economic miracle of 2009,
I'd argue we're in the early stages of a huge economic rebound.
Either way, the short-term direction of this chart is higher. If
the rapid increase in shipping costs holds, it should produce
windfall profits for shipping companies. And that possibility is
starting to show up in the stock prices.
Stocks like Eagle Bulk Shipping (EGLE) and Genco Shipping and
Trading (GNK) -- which have been wallflowers for most of the
stock market's dance party -- are finally starting to rally.
Take a look...
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GNK broke out to the upside of a five-month
consolidating-triangle pattern. The stock is a bit extended in
the short term, so it may come back down to retest the breakout
level. Ultimately, though, this is a bullish chart and suggests
a longer-term price target of about $38 per share.
The charts for just about every other dry shipping stock look
the same.
So after months of lagging, after months of watching nearly
every other market sector break out to new highs, maybe now the
shipping stocks are ready to play catch-up.
-- Jeff Clark
Editor
Growth Stock Wire
Editor's Note: This
article originally appeared in
Growth Stock Wire. |
