Shipping Into Some Profits: Why Shippers Took Off

The shipping industry has been pummeled over recent years, but as of late, they have skyrocketed to prices that don’t seem to match up with their fundamentals and it has a lot of traders scratching their heads. Since Donald Trump won the Presidential election in the beginning of November we have seen the markets rotate money into sectors that investors believe Trump will aid through his policies, including manufacturers, shippers, biotechs and copper, while sectors like technology have taken a hit.

This is because under Donald Trump’s proposed plans we could see an increase in inflation and manufacturing which would lead to more exports and a greater need for shipping materials. But perhaps the sector with the biggest gains was dry bulk shippers, including companies like Seanergy Maritime Holdings Corp. (NASDAQ:SHIP), DryShips Inc. (NASDAQ:DRYS) and Sino-Global Shipping America, Ltd. (NASDAQ:SINO). This sector has been neglected for years with stagnant growth, but has finally come back to life with DryShips Inc. (NASDAQ:DRYS) leading the way, as it caught the attention of traders when it made gains in excess of 2,000% in just a week’s time.

 – This article appeared first on ModestMoney.com.

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“Many of the shipping names in the last four to five years have adjusted to slower growth by not investing in shipping capacity,” says Douglas Mavrinac, a shipping analyst at Jefferies. “It will be good for these names if we have inflation and more economic growth, and it turns out we had under investment in the shipping market to facilitate the increased need for commodities going forward.” – Forbes

The biggest mover of this bunch was DryShips Inc. (NASDAQ:DRYS), which had only been trading in the $4.50 range before going parabolic and exploding to well over $100.00 per share, as you can see in the 30-minute chart above, just over a 2,100% jump in value, as shorts were squeezed out, magnifying the buying, and long speculators were jumping on board for the ride. This move pushed DRYS’ market cap to just over $115 million when it was only at $5 million the week before. Without any policies actually being put in place yet, it’s hard to make sense as to why this stock’s value went crazy other than speculators pumping the stock up.

Shares were halted multiple times into the move before being halted for the rest of the trading day by the NASDAQ until it received “further information” on the company. Following this halt shares came back to reality and sold off to more realistic prices in the $10 range. Traders made and lost millions on this move and is the reason why hard stops are your best friend. This is a prime example of how market speculation can drastically affect a stock’s price and further proves the point that markets are not efficient.

Sino-Global Shipping America, Ltd. (NASDAQ:SINO) and Seanergy Maritime Holdings Corp. (NASDAQ:SHIP) were also big movers but nothing like the DryShips Inc. (NASDAQ:DRYS) move. Sino-Global Shipping America, Ltd. (NASDAQ:SINO) was trading around the $1.00 range before popping to over $14 in just a few days, while Seanergy Maritime Holdings Corp. (NASDAQ:SHIP) made a similar move from the $2 range to just over $8.50. The sector has seen increased activity and volatility as more traders and investors are paying attention to it now.

A key economic indicator called the Baltic Dry Index (BDI) that measures the estimated prices of moving major raw materials via shipping is reaching levels that it hasn’t hit in over two years and is suggesting that the shipping market is picking up steam. President-elect Trump pledging to launch a $1 trillion infrastructure deal along with renegotiating trade deals is behind this spike in the index, and if he can follow through with his promises then we could see this index push even higher along with the stock prices of shippers.