Would you be so kind as to give me your input on the chart for Scorpio Tankers (NYSE:STNG)? I like the fundamentals of this company and also its low PE and dividend yield (gosh do I sound like I am 80 years old!). Anyway, a persistent decline in the stock's price began last summer and the decline accelerated in early 2016. The decline seems quite overextended relative to the stock's 200 day MA. Recent daily activity is encouraging and I remember your observation in TCS about "3" decisive moves leading to others jumping on the bandwagon. Is continued scope for intermediate term upside present? Thanking you in advance,

Eoin Treacy's view

Thanks for raising this question. I’ve also been looking at the shipping sector not least because it is so dependent on global growth and because it is another market where excess supply has resulted in low prices. 

The Baltic Dry Index reflects that oversupply but it has staged a reversionary rally this year along with commodity prices. It is now trading in the region of the trend mean but will need to sustain a move above 1000 to signal a return to demand dominance beyond short-term steadying. 

Generally speaking once a ship has been paid off valuations contract and dividends increase. That is often a signal they are about to embark on a fresh buying spree. With so much flux in the commodity sector and significant oversupply of ships one would hope companies are being reticent about expansion plans. 

The Bloomberg Dry Ships Index has now rallied to break its progression of lower rally highs and has closed its overextension relative to the trend mean. How well it holds the low on the first significant pullback will tell us a lot about how well demand is returning to dominance beyond the short term. 

Among oil tanker companies Scorpio Tankers (DY 8.18%) has paused in the region of the 2011/12 lows, following what was a steep decline. By ranging it is gradually unwinding the oversold condition relative to the trend mean but is will need to break out to new recovery highs to signal a return to demand dominance beyond some steadying.  

Nordic America Tankers rallied in early 2015 to break out of a two year base and has since formed a first step above it. The share is now trading above its MA and a sustained move below $12.50 would be required to question potential for additional upside.

Frontline has been confined to a base formation for over four years and is now testing the lower boundary. The company reintroduced a dividend in December with the result that the share is now yielding 17%. However a break in the progression of lower rally highs, currently near $9, would be required to check the slide in prices.