After a thrilling two-week rally in the stock market during early September, shippers began to fall. They had been enjoying a nice rally on the general premise of economic recovery, market stabilization, and rising materials prices. But suddenly on September 17th, the shipper sector broke, and leading names fell - plummeted, actually, at a much faster rate than the modest pullback in the general market would have implied.
With shippers today generally on the rise again, it is worthwhile to look at the reasons for the mid-September breakdown. What was the number one reason? I would have to say it was the Baltic Index, which quantifies the prices shippers get for new contracts. It had stabilized at near 2400 in Early September, and then began a robust rise, only to suddenly stop short. It began falling, slowly at first, then accelerating. By the 17th it was clear that the BDI was tanking, and the shippers as a group followed. The timing of the movements of BDI seemed to be the key. A market advance which coincides with a BDI advance is a powerful motivator for the depressed shipping stocks. The "robust rise" of early September triggered the sector advance. Few sectors snowball as readily as the shippers. Within days, shippers were moving to recent highs, but the BDI reversal stopped the process entirely.
Of course, the negative press didn't help either. The blogs were heavily negative on the shippers, pointing to the newly delivered ships and declaring that we need fewer ships, not more, in current economic conditions. Finally, Navios (NM) picked that moment to float a new stock offering, diluting their stockholders. The market knows that new offerings are one of the traditional signs of an overbought stock - in a sense, it is the ultimate in "insider selling".
How does today's rising shipper sector compare to September 17th? Well, the BDI is finally responding positively this time, passing 2800, rising 5 days in a row, and rising even faster than in early September. The chart also shows an even more key fact - the BDI is not only rising but is above its 200-day moving average; in Mid-September at the time of the shipper retreat the BDI was well below its 200-day ma.
