By Patrick Brik, BAS, CFA, CMT

Published: November 15, 2016

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Patrick Brik, BAS, CFA, CMT
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DryShips Inc.: There Is Fuel in This DRYS Stock Rocket Ship

DRYS StockDRYS Stock: A Lottery Ticket

DryShips Inc. (NASDAQ:DRYS) stock has exploded off of its lows set just days ago. There can be numerous reasons why this company is enjoying a meteoric rise, but I am not sure anything can really justify such a sharp move.

On November 2, DRYS stock made a new all-time low at $3.84, and eight days later, it was trading at $42.68. That is a 1016.15% return in eight days. Simply and utterly incredible! And I don’t think this run is over just quite yet.

I have been trying to justify a reason why DRYS stock has been goingup, but finding that exact reason has been near impossible. The Baltic Dry index has been rising for months now, so yes, the backdrop is getting better, but that is not the catalyst I am looking for.

The best I can come up with, and what I do know for sure, is that ever since Donald Trump won the election, DryShips stock and many industrial transportation stocks have caught a bid. It is this renewed appetite in transports that has sent DRYS stock, and many like it, soaring.

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The following DryShips stock chart illustrates the current run off of the lows, and potential levels of price resistance.

drys3

Chart courtesy of StockCharts.com

The DryShips stock chart above illustrates three different levels of price resistance that are highlighted by a pink box. I am assuming that the rally in DRYS stock will have difficulty breaking through these levels on the first attempt.

The first level of price resistance comes in the form of the 200-day moving average. The 200-day moving average is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When a share price is above the moving average, it is bullish. When a share price is below the moving average, it is bearish. Traders eye this moving average, and it has been known to act as support and resistance. The 200-day moving average currently sits at $78.58.

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The second level of resistance comes in the form of a downtrend line. The downtrend line, highlighted in blue, is created by connecting the peaks. A downtrend is defined by lower lows and confirmed by lower highs. It can easily be identified as the price moves from the upper left to the lower right. As long as this trend remains intact, DRYS stock remain bearish. This trend line will serve as resistance if DRYS stock approaches it. The downtrend line currently sits at $98.00.

The third level of resistance comes in the form of a horizontal level of resistance. This level acted as a previous level of support in 2016. It is not uncommon for a price to return and test a previous level of support. This level of resistance currently sits at $120.00.

If I were fortunate to own DRYS stock, I would be selling a third of my position around each of these three levels of resistance.

The following DryShips stock chart illustrates the trading action on an intra-day basis.

drys2

Chart courtesy of StockCharts.com

The intra-day trading action on DRYS stock illustrates that an ascending channel has quickly developed.

There are two parallel lines that define this trend. The pattern is known as a ascending channel. An ascending channel has two trend lines that define the upper and lower bounds. The share price oscillates between these two lines for as long as the trend permits. A trend reversal occurs when shares finally gather enough strength to break out of the channel.

This channel may or may not contain the stock, but it looks like the run higher in DryShips stock is likely to continue higher until it reverses.

Bottom Line on DryShips Inc. Stock

DryShips stock has taken on a new life and the price is surging higher. Better yet, I do not think this run is over. However, there is one thing I have learned (and painfully so) and, as a result, I do not chase stocks. If my timing is off, losses can amount in the blink of an eye. I would rather leave this type of speculation on DRYS stock to traders much more savvy than me.