Since the lows of January 2016 most stock segments and commodities have recovered strongly but shipping stocks are definitely one of the few exceptions. As part of our 2018 forecasts we try to understand whether this sector is a buy or sell for the remainder of 2018.
Although most of our articles have sufficient body this one will be quite short, exceptionally. The reason is that the answer to above question is quite clear, and does not require lots of explanation.
If we look at the state of the shipping stock sector in 2018 represented by the SEA ETF, in essence, it is very simple. The sector has bottomed in January 2016 after it broke down at the end of 2015. Since then, it remained in some sort of consolidation area, which may prove to be a long term bottom, though below its long term support (see light orange bar).
2 scenarios may unfold for shipping stocks in 2018:
- The recent bottom in August 2018 is a double bottom against January 2016. Once SEA ETF rises above $10.50, and stays there for 3 consecutive weeks, we have a confirmed bottom. The next stop will be the $13 to $14 area, and, ultimately, $15.
- However, on the flipside, if $9.70 gives away, we will see much lower prices in the shipping sector.
Note that shipping stocks are still in a downtrend in 2018, one that started 7 years ago.
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A retest of the blue downward sloping trendline will take place, if not in 2018 than likely in 2019 or 2020. Much will depend on when and how the bottom will be set, the one in light blue on the chart.