Shipping ETF Breaks Out

The Guggenheim Shipping ETF (NYSEArca: SEA) has surged 21% year-to-date on expectations of a recovering global economy.

While SEA has been range-bound since early October, the ETF is showing signs of a breakout that could set the stage for a return to its highest levels in two and a half years.

SEA “has formed a bullish, 8-week consolidation above the rising 10-week moving average,” according to Deron Wagner of Morpheus Trading Group. “We also see the base forming above the ‘dirty’ uptrend line.”

Wagner goes on to note “volume declined considerably during the base, which is a bullish sign. On the breakout around $18, $SEA started to attract some heavy buying interest, interest, but once the rally stalls, the momentum traders usually want out. As the ETF consolidates in a range and more traders head for the exit, we then see the dry up in volume that usually precedes a bullish breakout.”

SEA’s improving technical outlook is not lacking fundamental merit. The ETF’s run has been buoyed by a phenomenal run in the Baltic Dry Index (BDIY). The Baltic Dry Index , which measures daily charter rates to ship a variety of commodities across the globe, has nearly doubled over the past three months.

However, the association with the Baltic Dry Index is one of the biggest misnomers surrounding SEA. The BDI is not a stock index, rather it is an assessment of the price shippers are charging on a given day to move to coal, grains and related fare. [Clear Seas for Shipping ETF]