Spike in Day Rates Causes Massive Run in Dry Bulkers

Let’s put this into perspective before jumping in. This is the greatest speculative trade of 2016, on a percentage wise basis. I have years of experience trading this sector and kmow it well. Historically, the day rates for capes are very, very low. As a matter of fact, I’d bet hardly any of these shippers are making money sub $20k per day. Nonetheless, rates did spike again today, which has resulted in an astronomical gain in many bulkers — led by DRYS.

DRYS is higher by 45% in the pre market. But bear in mind, all of these stocks are micro caps. These aren’t even heavily shorted, because their shares have been dead money since 2008. This newly found fondness for the bulkers, for me, is the most interesting narrative in Wall Street in years. Unfortunately, it will be short lived. The day rates are just too low to justify the share gains.

In Exodus, we have the bulkers sequestered from the tankers. Our algos rank both technicals and fundamentals on a 1-5 scale. Here is the sector, with some data.

How overbought is the sector? We’re entering 2009 overbought levels following the huge spike from the bottom of the financial crisis.

On the bull side, this sector is so hated and underowned, it’s literally orders of magnitudes cheaper now, even after the run, than at any point the past decade. Hitherto, ships were rusting away, idle and drifting to conserve fuel expenses (not an exaggeration), thanks to a zombiefied industry of bankrupt shippers cannibalizing the market.

BEWARE: this is an extremely cash strapped industry run by irresponsible managers who just love to buy new ships. I can promise you they’re meeting with investment bankers now to price large secondaries, in order to finance new tonnage.

A member of Exodus, who’s in the business, thinks it’s an obvious short.