Stocks Hitting Rock Bottom?

Knowing when stocks are hitting rock bottom is a fool’s game… often because it is based on prediction rather than preparation. As you know, we don’t advocate guessing which way the market is going or predicting if the market is hitting rock bottom. Instead, we advocate a discipline of preparations. Nevertheless, we admit that there are signs and signals available for the wise investor… that mark the road map ahead. So, today, we will very briefly look at one way of using a particular sector to help investor gauge the longer-term trends of the overall markets.

Undercurrent of the Markets

Sometimes investors get caught by the undercurrents of the overall markets. Despite selecting fundamentally strong stocks, investors can still find their portfolio struggling when the overall markets dip. So, people often pay attention to the big numbers… things like consumer spending, housing starts, employment figures, and currency trends among others. In fact, it’s when these type of numbers are announced that we see markets move more significantly than at other times.

While I pay attention to these numbers, I don’t have time (nor interest) to follow each of them… after all, one number seems to contradict the other. So, I tend to focus on employment figures, especially as it relates to private sector job creation. But today, I want to point you to another major indicator that helps me understand the longer term market trends. However, first a word of caution: This indicator tends to move slowly… so it is lagging, not leading.

I’m talking about the Oil Tanker Business. What’s interesting is it seems to be hitting rock bottom lately. Now, many people might think this is only to be expected due to oil prices sitting around $85. But in reality, this is only part of the equation. Perhaps more significant in this business sector is the demand of ships… too many ships and the sector drops.

Recently, we observed Frontline (FRO) announce they are buying more ships… a clear sign that they believe their business has hit rock bottom. After all, if they thought it was going to continue to depreciate, they wouldn’t spend such huge capital on depreciating assets.

But, you say, Nordic American Tank Ship (NAT) reported wider than expected losses recently. True… yet the stock itself didn’t move down. It sat there… resting on a bottom perhaps?

So, as you’re examining the market trends and wondering which way things are going, pay attention to the employment trends, the 4 Week Rule, and how the leaders are moving (i.e. DIS)… but don’t forget to take a quick peak at the Oil Tankers too. You may just find they help confirm the trend you believe to already be in place.