Earlier this week, The Wall Street Journal reported that Ports in the United States are facing logjams that could stretch far into 2022.
With ports already swamped from a record number of containers reaching U.S. shores during this year’s peak shipping season, logjams are growing as warehouses and distribution networks fill up, according to the report.
These logjams have been an issue at major ports on both the east and west coasts of the US, which has resulted in a sharp increase in shipping costs.
History is replete with examples of spectacular sector-wide stock rallies that were fueled by supply disruptions.
Today, we’re going to take a look at the Marine Shipping industry to see if there are any opportunities that can still be found, even after most of these stocks have surged in recent weeks.
The latest data from Marine Exchange of Southern California & Vessel Traffic Service of Los Angeles and Long Beach ports shows container ship congestion is getting worse.
This can be seen on Figure 1 below.
In addition to bottlenecks at ports disrupting the global supply chain, a shortage of truck drivers, port and warehouse workers have also added to the buildup in shipping delays.
Throw in a shortage of global shipping containers and you now have a perfect storm of items forcing shipping costs higher across the globe.
Unfortunately for consumers, experts across the industry continue to warn that normalization within this industry is not expected anytime soon.
For traders, however, it’s supply disruption narratives such as this that often fuel powerful price moves across industries.
Golden Ocean Group (GOGL) is still offering bulls a chance to buy
After doing a quick scan of publicly traded companies across the Marine Shipping industry, I found that many of the stocks in this group have surged in recent weeks.
While I do expect these trends to continue, chasing rallies is not something that I prefer to do.
There are a few stocks, however, that haven’t gotten too far out of reach just yet.
The one I’m choosing to take a closer look at is Golden Ocean Group (GOGL).
Golden Ocean Group Limited is a shipping company engaged in the transportation of dry bulk cargoes. It operates primarily in the Capesize and Panamax market. Golden Ocean Group Limited, formerly known as Knightsbridge Shipping Limited, is based in HAMILTON, Bermuda.
Currently, there is an average analyst price target of $12.21 for GOGL, which the stock already obtained on August 30th, and has struggled to climb above ever since.
However, I am interested in this stock for much bigger reasons.
Primarily, as Figure 2 shows, GOGL climbed out of a massive 5-year “double bottom” base in May of this year and has been using the former resistance of that bottoming pattern as support ever since.
This is incredibly constructive price action that tells me the stock is still working toward the potential longer-term target generated by this pattern, which extends to the $15 area over the months ahead.
The problem with big pattern breakouts such as this, however, is that it can sometimes take the stock longer than expected to consolidate above the pattern breakout area before the trend ultimately resumes toward the upside target.
As traders, though, we have to identify when things are working in a manner that is consistent with our views, and right now this bullish setup is still working.
Let’s take a closer look at what I mean by using Figure 3 as a guide.
As the chart above shows, GOGL has rallied strongly since testing the “double bottom” breakout area near $9 during the mid-July/early-August timeframe.
Obviously, I have no idea if the stock is going to continue higher without looking back or if it is going to settle down and let the higher sloping 34-day moving average catch up.
I chose the 34-day average because it represents a Fibonacci number, and because this average has a proven track record of attracting buyers during trending environments (see green circles on chart).
Basically, there are two ways to play this: either you can chase the stock as it traces out what looks to be a “bull flag” pattern, or you can play the longer-term game and wait to see if it pulls back closer to the 34-day moving average that has worked so well as support in the past.
The way I am thinking about this right now, a trader can either choose to play this strength for a short-to-near-term bullish trade, or they can plan to hold longer-term, given the pattern-related potential shown on Figure 2.
As Figure 3 shows, those deciding to play this bullish setup with a short-term timeframe should use the bottom of the still-developing “bull flag” at $10.66 as your stop (see chart).
For those interested in playing for the long-term potential to $15 over the coming months, the most immediate path higher would remain intact as long as the stock does not close meaningfully below the 34-day moving average (currently at $10.09), since such a breakdown would signal that a more prolonged consolidation above the “double bottom” breakout area of $9 may need to occur before the long-term uptrend can resume.