Shipping stocks have been hard hit over the last year. The three discussed below are all down between 38% and 63% over the last year. The stocks have stabilized, and even rallied over the last several months, but are now testing a major support level. If the price breaks below support, it indicates the price could continue to fall, keeping the long-term downtrend in place. On the other hand, bulls will be watching the support region as a potential buying opportunity.
Frontline Ltd. (FRO) has been predominantly range-bound since February, with the lows of the range continually pushing closer to $7. On September 13, the price dropped below $7, hitting an intraday low of $6.93 but closing at $7.03. The whole region around $7 is a support zone, as the price has bounced off of it multiple times over the last seven months, pushing above $8 each time. With the long-term trend down, those that are bearish are viewing this as a downside breakout. With the range covering a $3 area, a breakout below $7 signals a decline to $4.
On the other hand, the price has dropped slightly below the prior low on multiple occasions over the last seven months. Each of those times the price has moved higher, not lower. Bulls will be watching for the price to rally, and looking for an exit in the $8.25 region, or potentially even near $9 where the price has hit resistance on many occasions.
Teekay Offshore Partners LP (TOO) bottomed at $2.30 in February and bounced to an intraday high of $7.25 in April. Since then the upward momentum has stalled, with the price moving sideways since May. As of September 13, the price is very close to a trendline formed by the rally earlier in the year. That trendline intersects at $5.35, and if the stock falls below that, it's a warning sign of lower prices to come. $5 to $4.95 is another support area formed by the sideways price action throughout August. A decline below $4.95 would strengthen the bearish argument. If that downward breakout occurs, there is minor support just above $4, $3 and $2.30; levels which could all act as exit points on short trades.
With both the $4 and $5 regions having caused the price to bounce over the last three months, if the price pauses or bounces there again, bulls will be looking to buy. Initial upside targets are $6 and just below $7. The price needs to rally well above $7 to signal a continuation of the uptrend that started in February.
Capital Products Partners LP (CPLP) is range-bound since mid-February. The stock hit a low of $2.50 in March, then bounced to $3.96. In April the stock hit a low of $2.41, then bounced to $4.05. Since mid-August, the price has been oscillating between $3.89 and $3.32, just below the longer-term resistance area ($3.96 to $4.05). If the stock falls below $3.32, there is minor support at $3 and stronger support near $2.50. Both of these levels function as profit taking opportunities on short trades. On the other hand, a strong rally above $4 indicates an upside breakout of the range, with a price target of $5.50 (approximate height of range added to breakout price).
The Bottom Line
These three shipping stocks are trading near important support levels. A breach of support means likely lower prices to come. That said, these support levels have held up before, causing the price to bounce. No matter which side of the trade is taken, control risk with a stop loss order. If going short, a stop loss can be placed just above a recent swing high. If going long, a stop loss can be placed just below a recent swing low.
Disclosure: The author doesn't have positions in the stocks mentioned.