My First Threesome (with Pictures)

• Posted by Greg Harmon
• on April 15th, 2011

Yes I was left alone last night and wandered into new experimental territory. Before you race on to see the pictures let me do a little set up work. I have always been interested in how this might work for this big fair haired tanker of a guy. Two way action is easy to understand but I believe that you have to expand your horizons and test your limits to move forward. So I seized the moment.

The Set Up

There are many stories out there but mine involves the railroad, Diana and her girlfriend from Kansas City. I’d read that rail traffic is increasing and Cleveland has a lot of freight cars come through. Bringing in the railroad should add even more spice to the 2 on 1 action. Seems appropriate, riding the rail. Here is the first picture, Diana, and it is a sexy one.

Diana Shipping, DSX

Diana Shipping, ticker $DSX has been in a downtrend for nearly two years and a descending triangle for the past year. It is testing the bottom support rail at 11.50 with major support at 11.16 below that. The declining Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) suggest this may be the time to move down below.

Nordic American Tanker Shipping, NAT

Nordic American Tanker Shipping, ticker $NAT, has a similar look with a downtrend and descending triangle of more than a year. But the RSI and MACD are further long to the negative and it may need to rest as these two go back and forth racing to go lower. But it looks like they will both continue to go down. Two good shorts but adding the third to the mix brings new excitement and cuts the risk. Diana’s Midwestern friend, Kansas City Southern, ticker $KSU, has a completely opposite look and feel to Diana.

Kansas City Southern, KSU

KSU has been in an uptrend since September and recently moved into a consolidating symmetrical triangle. It is basing and on the 100 day Simple Moving Average and the MACD and RSI have leveled and are starting to improve. It looks to be biased to moving on the upside.

The Trade

Either shipper combined with the Railroad would make for a sexy pairs trade, but why not add in the third? The two shippers short together can help out. If one gets tired and needs to rest or move sideways for a while, the other can continue to work lower.

Buy 200 KSU and short 300 DSX and 300 NAT

Below is a chart of the last six months of of performance of this threesome and it looks impressive. The run higher and pullback then repeat but a higher low and now headed higher again. The individual strengths and weaknesses of each above set the stage for continued pleasure in this trade.

2xKSU vs 3x(DSX+NAT)

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

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