Talk about Short-covering Rally -- Shippers Rise 500%+

Some shipping companies had one of the biggest short-covering rallies in recent memory when they rose 500% or more within a few days.

(source: Yahoo! Finance, downloaded November 16 2016)

I came across this unusual outcome after reading the story at Marketwatch. There are always some crazy short-covering rallies but I haven't seen, nor heard of, such huge moves across multiple stocks. DryShips had a recent reverse stock split and not sure if that threw off some quantitative fund or something.

The stocks above are for DryShips (DRYS) and Globus Maritime (GLBS). These are shipping companies and long-time readers may recall how I have touched at the extreme volatility of DryShips and dry bulk index, and even wondered several years ago if DRYS was an investment opportunity. The whole industry is distressed and facing some catastrophic problems. I have been looking lately at Navigator Gas (NVGS) and Seacor (CKH) but the issue is the massive overcapacity. For instance, Navigator Gas is seeing declining prices and shipping volumes yet it is contractually committed to pay and take delivery of even more ships over the next few years--so are some of its competitors! So the situation is not pretty at all.

Companies like DryShips are on the verge of bankruptcy and the shares are essentially extremely-low-probability-potentially-high-return "options." As the chart below shows, the company had a similar huge rise near the Financial Crisis in 2008 and collapsed. This time around, it may be the final nail in the coffin...

(source: Yahoo! Finance, downloaded November 16 2016)

Comments

Post a Comment

Popular Posts

Thoughts on the stock market - March 2020

Image
Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say...
✖ READ MORE >>>

Warren Buffett's Evolution and his Three Investment Styles

Image
A Young Warren Buffett In a comment to one of my posts , Mark Carter, who incidentally appears to have a  good blog worth checking out , asked: "Buffett Prime is 1970's to early 1990's" Could you elaborate? I have vaguely indicated how I view Warren Buffett in the past, but I thought I would detail my view of his investing behaviour. This is more of an opinion piece and many others would disagree with me (if you do, I'm curious to hear your thoughts). I don't follow Warren Buffett as closely as many value investors so I may get some facts wrong. My view is that Warren Buffett went through three different phases, with each consisting of different investment techniques. The overall investment theory remained the same—what people call value investing—but his execution, tactics, and strategy differs across the three phases. Some people may break up his career into additional periods but my feeling is that the three I will describe essentially capt...
✖ READ MORE >>>

Hugh Hendry discussion at the Alternative Investment Conference

Thanks to Value Investing World for bringing this Hugh Hendry interview to my attention. I may not agree with all the things—short-term orientation of hedge funds is actually worse IMO; the sharp pencil effect doesn't always work—but Hendry is a true contrarian and worth listening. Like Marc Faber or Jim Rogers, you also can't take everything Hugh Hendry says seriously. I had always felt Hugh Hendry was firmly in the deflation camp but I get the feeling that he is now opening up to high-inflation possibilities. Otherwise, his stance appears to be similar to past opinions.
✖ READ MORE >>>