A quick glance at Thursday's biggest gainers and losers reveals that the shipping industry is a complete mess right now. Several notable stocks in this sector, including DryShips DRYS , Global Ship Lease GSL , and Diana Containerships DCIX , are either soaring or plummeting, as many investors feel a recently-formed bubble is bursting.
Shares of DryShips, which were halted for the entirety of Wednesday, plunged more than 66% in morning trading Thursday. The Greece-based carrier company announced that it had entered into an agreement to sell convertible preferred securities worth about $20 million.
On the other hand, Global Ship Lease soared more than 25%; the stock has now doubled over the last three days of trading. Diana Containerships was also rallying recently-the stock gained about 450% on the week at Wednesday's close-but shares plummeted nearly 40% on Thursday.
Globus Maritime GLBS , which grew eight-fold over the past week, also came back down to Earth on Thursday; the stock was down about 45% at noon. Other shipping companies, however, maintained their momentum. Rand Logistics RLOG and Sino-Global Shipping America SINO surged about 41% and 8%, respectively.
So what the heck is going on with shipping companies this week? A recent note from Wells Fargo analysts Michael Webber suggests that this industry is being affected by a bubble created by algorithm-based trading.
"While we believe retail momentum and short covering likely got this trade going, given the sheer size of the volume and the continued (relentless) pricing movements, we believe momentum-based algorithms--quant trading--are likely a very significant factor/catalyst at this point," Webber noted.
"We believe this is important to note, given that if these moves were purely a retail momentum trade, the incremental value created could have relatively more staying power than a more quant driven flash (esque) bubble."
Long story short, these shipping stocks are going absolutely crazy right now. If you are a brave investor, perhaps there are some short-term plays to be made here, but the sheer volatility of these stocks is enough to keep me away for now.
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