The bulk shippers are an interesting group. They tend to trade in large ranges and with tremendous volatility -- just like the Baltic Index which determines their charge rates. They are also momentum-type trades in that once they get going the traders pile in resulting in a sheer momentum moves that take them higher.
With the general market struggling, most of the charts of the bulk shippers are a bit droopy now although a couple of them have developed a tradable channel. Let's look at
and a chart that is setting up for a near-term long trade.
Genco Shipping is showing a sideways trend on all three time frames which is reasonably typical of a channel trade. What makes it more interesting is that the daily chart shows a false break lower under a swing point which has created a
reading which actually creates the buy on the next dip.
Before jumping to that time frame though, let's quickly look at the broader landscape. On the long-term chart we can see excellent support at the top and bottom of the channel (demarcated by the large volume high and low bars).
That gives you the confidence when trading the channel that you have your back up against a wall when taking a position, long or short.
On the weekly chart, we see the same sort of setup with a slightly smaller price range as we narrow our focus to the last nine months of trading action.
With channel boundaries defined, a look at the daily chart provides the reward-to-risk parameters to set up the trade.
Since we are considering a channel trade, we need something to tell us when to pull the trigger, something besides just being at the bottom or top of the channel. Look at how the AB=CD down failed when prices went under the swing low during late December. It failed because volume didn't expand as price went lower.
As you know, when a suspect trend is created it can continue suspect and in this case that would be for prices to continue lower, which they did. Glancing back to the weekly chart, we can see the top of the "channel buy zone" coming in right around that $19 level.
Now, here's the catch. See how volume was higher on the reversal day on the first day of February? The fact that volume expanded on that reversal day combined with the price action Wednesday (prices went over and closed back under the swing low breakdown day) suggests that we probably get another test of the recent lows. If we come back into that area and volume remains light (as compared to the last day of January and first day of February), then you can pull the trigger and take the trade.
Your risk is the mid-$16s if you want to keep the stops loose and you are shooting for $26 to $28 or so.
That is the trade and that will do it for now. So until next time, just keep trading the charts.
At the time of publication, Little had no position in the stock mentioned, though positions can change at any time.
L.A. Little, author, professional trader and money manager, writes daily on
, a free educational site for traders and investors. He has been featured in numerous publications and is the author of
His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.