In Shipping Owning Beats Doing the Work

• Posted by Greg Harmon
• on August 3rd, 2011

The shipping business, and I mean tankers, has been a horrible place to put your money over the last several months. Several times it has looked like the bottom is in only to find that the hull was cracked and they leaked lower. Looking at the chart for Danaos (ticker: $DAC) gives a good example of how bad it looks. lows in April, May and June could not hold and now it looks like it

Danaos Corp, $DAC

is heading to Davy Jone’s Locker near 3.75 if it falls under 4.25. The low and falling Relative Strength Index (RSI) and the negative Moving Average Convergence Divergence (MACD) indicator support a move lower.

But this is not the same picture when you flip to the leasers of the tankers. The chart below for SeaCube Container Leasing (ticker: $BOX) appears to be bottoming. But like the shippers themselves

SeaCube Container Leasing, $BOX

SeaCube has failed at bottoming attempts before. This time does appear different as it has a MACD that is improving and the RSI has been hovering near the 30 level. But if it fails there is a long way to support at 13.50and then 13.25. One way to deal with this situation is to enter a pairs trade. The chart below is a ratio chart of $BOX against $DAC. Notice how it is probing at resistance near 3.41 for the third time in a month after creating higher lows along the way. Also

$BOX vs $DAC

that the 3.41 level has history for this pair. The RSI is moving sideways and the MACD is possibly crossing higher on bigger volume, all supporting more upside. This sets up as a great pairs trade on a break over 3.41.

Trade Idea: Buy 5 $BOX and sell 17 $DAC on a break over 3.41 with a target of 3.71 and stop at 3.36

This trade were it to trigger with Tuesday’s closing prices would risk $1.93 to make $8.61-9.39, or a reward to risk ratio of over 4.4:1.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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