Wednesday, November 16, 2016 0 comments ++[ CLICK TO COMMENT ]++

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)

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