Wednesday, 21 April 2010 at 09:45, By Michael Michaud
When you talk about ocean freight shipping, you have to talk about the Baltic Dry Index.
The Baltic Dry Index is a main industry measure for global dry bulk ocean shipping rates and business activity. The index provides a current measurement of the price of moving major raw materials by sea, and the current strength or weakness of the global economy with the BPI as a leading index indicator.
The Baltic Dry Index got absolutely crushed and killed starting June 2008 right before the major financial crisis hit the global markets hard and fast to a low of about 750 in December 2008.
Before that it had a big upside move starting early 2006 in the 2300 area to the 11,600 high in May 2008 before it crashed. Since the December 2008 bottom at 750, the BDI moved up to about 4250 in June 2009. Since then, the BDI has been in a trading range between about 2200 and 4250.
Currently the Baltic Dry Index is at about 2900 just below its 50 and 200 day moving averages. Near term this could be a negative technically, but I see it as a possible low-risk high-reward buying opportunity now. Intermediate and long term, there is a very good chance the BDI can continue trending upwards from here with Asia China and emerging economies staying respectably strong.
If China and its new global economy leadership, if their economy slows significantly, then all bets are off on this new idea.
The Baltic Dry Index could possibly see a short squeeze now with the significant short interest on it and with the relatively strong economies of Asia China, and the fact that it’s been one of the worst performing index’s lately. The BDI’s major shipping components of the index are still well below the S&P500 index.
For an area of the market that many think and are betting on a continued slowdown, if a reversal does happen as I suspect right now, the reward risk ratio looks very favorable as long as you stick to stop-loss in case the index and shipping stocks keep heading lower.
In line with this theme of a possibly improving Baltic Dry Index, I see a low-risk high-reward buying opportunity in Gulf Navigation listed on the Dubai Financial Market Exchange.
Gulf Navigation Holding Company Profile
Gulf Navigation is engaged in the field of maritime transport, specializing in transporting crude oil, its derivatives and chemical products, in addition to managing the operation and servicing of vessels as well as commercial agencies related to marine transport activities.
Gulf Navigation produced a 3 per cent cash dividend approved for the year 2009 which is a slight positive, but the recent past disaster was their audited net profit announced for the year 2009, which was Dh26.55 million, which was a decrease of 82 per cent and a major negative if that continues. So for my trade plan below for Gulf Navigation to work out, the market has to see now that the worst is over for GulfNav to attract some buying pressure, and upside potential.
Recent Gulf Navigation news has them agreeing to a joint venture with Gulf Stolt Tankers to buy four new chemical carrier ships. It’s reported they bought these vessels at a substantially lower price than the original 2005 contract to purchase agreement. Deutsche, Nordea, and Danske banks are financing the ship purchases.
I think Gulf Navigation’s decision to purchase more ships now shows that they are very possibly seeing an upswing in their shipping business this year and beyond. To earn more in your existing business you first have to invest more, and right now it looks like it might be a good time for them to have done just that.
It looks to me that the majority of the selling on Gulf Navigation the last 52 weeks might possibly be over for awhile with trading volume very low now compared to a year ago. When prices are crashed out and things look their worst is a good time to buy, but first let the falling knife settle down on the floor before trying to pick it up. Trying to catch a knife in freefall might cut you.
Looks like the GulfNav knife has settled and accumulation purchases of Gulf Navigation could provide some nice rewards moving forward. In case not, stick to stop-loss to live, invest, trade another day. As a last note, if their shipping business does not improve or get any worse as the market thinks, 0.48 to 0.69 looks to be the current trading range.
Buy Long Position Gulf Navigation – Ticker GULFNAV Dubai Financial Market
Buy Entry: 0.54 to 0.59
Stop-Loss: 0.51 to 0.48
Take Profit Areas: 0.64 to 0.65, 0.67 to 0.68, 0.73 to 0.74, 0.89 to 0.91
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