Sometimes misunderstood, sometimes overlooked among transportation exchange traded funds, the Guggenheim Shipping ETF (SEA) is arguably a gem for traders looking for an accurate reading on near- to medium-term risk appetite.
Just do not make the mistake of assuming that SEA trades in lockstep with the Baltic Dry Index, a measure of daily charter rates to ship a variety of commodities. SEA holds 27 stocks and that group does NOT include day trader favorites such as DryShips (DRYS), Baltic Trading (BALT), Diana Shipping (DSX) and related firms. It is a good thing that SEA is not intimately linked to the Baltic Dry Index’s fortunes because the index has struggled recently. [Shipping ETF Trounces Baltic Dry Index]
SEA has not. The fund is up 2.9% to start 2014, a performance that is more than twice as good as the iShares Transportation Average ETF (IYT) . SEA has also made its way back to its highest levels in two and a half years as the S&P 500 and the iShares MSCI ACWI ETF (ACWI) have started the year in the red. Tuesday’s close above $22 could prove significant for SEA. [Shipping ETF Searches for More Upside]
“In the later half of 2013, SEA was trading in a pretty tight range, but still managed to post a 34% gain for the year. In late December, it broke out of its range and continued higher into 2014, hitting a 52-week high today. Looking at the daily 6-month chart, SEA also recently broke out of a pennant continuation pattern, which suggests more upside,” according to Tom Psarofagis of AGD Capital Management.
Psarofagis notes that the $22 area has previously been stiff resistance for SEA, confirming the notion that a string of closes above that price point should encourage fresh buying.
“If SEA can follow through with some momentum and break that level, it should see calm seas ahead,” Psarofagis added.
A key element to SEA’s success is its correlation, one that is often forgotten, to the Baltic Tanker Dirty Index, the green line in the chart below. Seems encouraging, does it not?
Chart Courtesy: Lloyd’s List Intelligence
- Baltic Dry Index