Popular opinion would clearly have it that buying shipping stocks would have to be up there with one of the most weirdest/off-the-wall things to do in equity markets right now. In support of that we can find absolutely no bullish or positive commentary anywhere. Yet shipping stocks refuse to go down in the face of overwhelming odds. The chart below is that of the Russell 3000 Shipping Index. Note how close the index is to moving to a multi-week high. From a pure technical perspective the longer a stock, security or market moves in a sideways direction the greater will be the magnitude of the breakout.
You may be asking why we have been making so much fuss about the shipping sector, after all its market cap is a mere $18bn (80% of that of FedEx)? Apart from a fantastic value proposition in itself (dividend yield of 5% and P/Book of 1.20) the signals generated by the shipping sector have huge ramifications for other sectors and markets. Perhaps the most important signal generated by a breakout in the Russell 3000 Shipping index would be for commodities. We do not think that there can be a sustained move in commodities (of any magnitude) unless there is confirmation from the shipping sector.
The chart below is an overlay of the CRB Index (our proxy for the broad commodity market) and the Russell 3000 Shipping Index. They look distinctively similar in appearance. You may ask what’s the chicken and which is the egg. We don’t know but we suspect that when one breaks out of its trading range the other will follow. We will put ourselves on the line and suggest that the shipping sector will breakout first!
Yes we may well be somewhat premature in getting into shipping stocks, but our thrill is in getting in before everyone else. We cannot see any money management institutions or mums and pops invested in shipping stocks right now. Yet they will come!
