Eagle Bulk Shipping Gives Up Recent Gains - Time For A Pairs Trade

| About: Eagle Bulk (EGLE)

Shares of Eagle Bulk Shipping Inc (NASDAQ:EGLE) have now given back nearly all of their gains following the company's announcement of a deal reached to extend the maturity of its debt on June 21.

EGLE ChartEGLE data by YCharts

As you can see in the chart above, EGLE shares surged following news on June 21st. However, in the time that has followed, EGLE has given up nearly all gains from the announcement.

Broad Market Downturn

As shown by the chart below, the S&P 500 (NYSEARCA:SPY) has moved significantly lower in the time since EGLE shares surged. This move lower likely had an impact on EGLE since the stock has a beta of 2.48.

SPY ChartSPY data by YCharts

Eagle Outperforms

It should be noted that EGLE outperformed its peers significantly since the announcement. Without the debt extension, EGLE would have likely moved lower with the rest of the dry bulk sector.

EGLE ChartEGLE data by YCharts

My Take

From my previous commentary:

While the road may eventually lead to bankruptcy, due to weak dry bulk rates, EGLE seems to have bought a lot of time. That being said, I would not rush into EGLE shares on Thursday as this has the potential to be a "buy the rumor sell the news" situation considering EGLE shares had been moving sharply higher ahead of this announcement.

Consider the sharp move lower over the past few days, it is safe to say that much of the euphoria has worn off. The "sell the news" part of this trade is now over because the stock is no longer up on the news. In my opinion the recent news for EGLE has been very good and the stock deserves some sort of a bounce. However, the dry bulk sector still looks extremely weak. Instead of buying EGLE outright, I would consider putting on a pairs trade. The pairs trade would involve buying EGLE and going short another dry bulk company such as Genco Shipping (NYSE:GNK), DryShips (NASDAQ:DRYS), or Diana Shipping (NYSE:DSX).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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