Why I'm Adding to Excel Maritime, Atwood Oceanic and James River Coal

Another nice markup to close the day. I have to hand it to the magical invisible hand. Not as egregious as last Friday, but we'll take it.

Over under in how many days the "reflation" trade comes back? 2.

EDIT 4:45 PM But let's be clear, this is mostly a smoke and magic trade in commodities - outside of the weak dollar. See this factoid on how weak the US consumer is, the rise in gasoline prices just from low $2s to mid to upper $2s has already done this per report.

• Gasoline consumption slipped 518,000 barrels to 9.02 million, the biggest decline since January 2005.

You can tell me all the stories you want about China, but please, this is the biggest market in the world.

END EDIT

ETFs have truly changed this game - anything healthcare related, HAL9000 and friends piled into it, while they piled out of commodities. Literally I see 200+ stocks on my watch lists down 5-10%+ because oil is down a whopping 2%. Just amazing really - student body left trading seems here to stay.

Still have my limit order out in BHP Billiton (BHP) at $55 but for now Excel Maritime (EXM), Atwood Oceanics (ATW) and James River Coal (JRCC) took some boot stomps... I'm adding to those 3 in decent size. Hoping for 1 more big down day in the group to get better pricing - all 3 are holding uptrends so I am ok with these falling.

Please note all comments below are on individual charts, but as we noted Monday there is now a 80% correlation between the stock market and individual stocks, so individual charts are prisoners to the market... and for these guys in particular; they are all prisoners to oil. If oil drops to $60 or below - the charts will be meaningless as 'hot money' will run to the next thesis.

James River has rewarded all buys on dips to the 20 day the past month, and keeps making higher highs. The 50 day has also crossed over the 200 day which is a supporting positive.

Excel Maritime

- see James River - all dips to the 20 day are rewarded... only difference is the fact the 200 day is higher, not lower.

Atwood Oceanics

- just my sissy way to play oil; I prefer oil services and deep(er) sea drilling is my favorite method in oil services.

On the other hand, I am worried about

Mosaic (MOS)

here as the chart, below $52, could take a turn for the worse. This 20 day moving average is key - below that, we could visit $48, so I'll cut this name back if it falls Friday morning and look to reacquire down at $48, which is nearly 10% below here. I don't like the move below the 200 day moving average, and the fact it did not run with all the rest of the commodity crowd Monday and Tuesday.

These 5-10-15% swings, all tied to oil make little sense... but this is the market we have created for ourselves. A craps table.

Disclosure: Long all names mentioned except the Invisible Hand

Comments

[Crankly09:]

I like, own and have just added my position to EXM as well. Where do you see the pps a year from now?

Jun 05 06:01 AM

[tonyinbrazil:]

Unlike Trader Mark, I added to my MOS position on the dip.

Figured with the world population growing (and eating more), the low p/e relative to competitors, minimal debt, planting season here and the stock beaten down mercilessly over the past few quarters, this seemed like a pretty solid buy and hold play.

So far, the stock's been holding the 50s. Let's see if she breaks through the 59 resistence.

Jun 05 09:27 AM

[ramisle:]

Mark, you've always done great work and extensive research, but I would point out a few things that I don't think you have taken into account for EXM.
The great thing about Dry Bulk is the transparency .
It is smart to keep an eye on the FFA's when dealing with Dry Bulk, it lets you know what the people who are in the business think the rates will be going. The Future Freight Agreements are telling us that the rates are expected to drop dramatically this summer. There is an ever increasing fleet hitting the water every day, and the order cancellations do not pertain to any ships that are under construction, only future orders.
The other is the fact that this recent frenzy in chartering of ships, is caused by Ore trader speculation and over 100 ship queue lined up at Chinese ports, waiting to unload. Adding to a massive, record, stockpile of ore in the ports and at the steel mills. There was a 100 ship queue last May, until the government put an end to it by increasing storage fees. And the BDI collapsed.
The head of the China Iron and Steel Association, the Chinese Government, and even the head of BHP, has warned that the record amounts of ore imports, is a bubble that is unsustainable in relation to actual demand for steel, both export and domestic.
The idea that the Government would condone the hoarding of ore, would be contrary to the efforts they are making to help the steel makers recover from 10 months of losing money.
An orderly rate of delivery that matches the tepid demand would ensure that the spot price of ore and the cost of shipping it, would stay low enough to make a profit. China has made it clear that they intend to eliminate excess capacity in steel mills. The want to cut production to 460 million tonnes for 2009, from 500 million in 2008. If they continue at the pace they have set over the first five months, they will reach 537 for the year.
CISA is fighting for a 40% cut in the benchmark price of ore so that it's members can get back to profitability. If they succeed in paying $60 per ton of ore, but the cost of delivery and storage fees add another $50, then they have defeated the purpose of cheap ore. They don't have to fight the rest of the world for ore, MT and the other top Steel makers have shut down 50% of production and lay off more workers every day.
For the big picture, on a percentage basis, China alone cannot ship enough to make up for the worldwide reduction in ore demand.
Check production cuts by the big three miners. And despite the cancellations, and scrapping of old ships, the Bulk fleet will grow by 10% this year.
The much debated EXM earnings report, with such a tremendous "beat". The Amortization of below market charters which accounted for $179 million in revenue. Let me give you an idea of what this is by taking the specific non-cash gain of $51.5 million in "accelerated amortization of the time charter value of the Sandra and the Coal Pride." Lets take the Sandra, they had a charter for $39,000 per day until 2016, which was cancelled and redone for the same period at a weighted average of $26,500 per day. This amounts to a loss over the length of the charter of $30 million. So how does EXM report this and other losses amounting to $179 million as a non-cash gain?
Just call it the "Amortization of below market charters."
Without it, they lost money last quarter.
My sources:
tradewinds.no
lloydslist.com
hellenicshippingnews.com
drybulkindex.com
brs-paris.com
chinamining.org
steelguru.com
cotzias.gr
reports.platou.com
mineweb.net
chinadaily.com

Jun 05 12:18 PM

[TraderMark:]

Crank

EXM is hostage to oil. as oil goes up the dry bulk shippers are going up on 'reflation trade'. No idea in a year.

Tony,
I like MOST th ebst for long term fundamentals but i was speaking of technicals here. MOS had the most at risk chart and this morning ag was red while much of the rest of the commodity group was green. Just making point - doesnt mean you cannot trade it.

Ramilse,
I tried to make clear the distinction between believing in something and trading it because thats what the crowd believes i.e. smoke and mirror.

EXM can be traded for GNK or TBSI or any of a number of other dry bulk shippers. They generally move in a group in this market were individual stock selection means little and sector allocation means everything. I think a lot of people are changing that character change in the market the past 2-3 years. ETFs and computer driven orders have changed the game. Sectors mean everything, individual stocks mean little IMO.


On Jun 05 06:01 AM Crankly09 wrote:

> I like, own and have just added my position to EXM as well. Where
> do you see the pps a year from now?

Jun 05 12:47 PM

[ramisle:]

Well then I should have saved alot of typing by just saying that the BDI is going down, starting now, and the Bulkers go where the BDI takes them.
Good trading!

Jun 05 01:22 PM