Earlier this evening Jim Cramer featured my work on Diana Shipping (DSX) in his “Off the Charts” segment of Mad Money. Here is my technical take. (March 26, 2013)
DSX NAT DFS DSX
I’m Dan Fitzpatrick at StockMarketMentor.com on Tuesday, March 26th. Today in this “Free Chart” video I want to look at Diana Shipping ( $DSX Diana Shipping Inc ). This is a stock that Cramer covered this earlier today on his “Off the Charts” segment. He is really, really bullish on the dry bulk shippers, one of which is Nordic American ( $NAT Nordic American Tanker Ltd ). You can see the kind of move this has made, like a big move out of a volatility squeeze. This is not a tradable stock, I don’t think, because ultimately I think this stock goes higher. So you look at this and say, “Well, this is a short, this is an excellent shorting opportunity, big move up and now it’s reversing so the path of least resistance is down.” That’s probably true, however, assuming you subscribe to my theory, and perhaps you don’t, but if you really think that Nordic American ( $NAT Nordic American Tanker Ltd ) is ultimately going to move higher then shorting it is kind of cute, you know you’re kind of getting a little bit, for lack of a better term, it’s a trading term I guess, getting a little bit cute with this stock trying to trade every little ebb and flow. I think the better method is just to stick with your bullish bias and say, “Okay, I hope this pig pulls back, I hope it pulls back to below $11.00 to $10.50, maybe test the 200-day moving average because then I’ll buy a slug of it.” Well we worked on Diana Shipping ( $DSX Diana Shipping Inc ) and as I wrote this up for Jim last night I had suggested that we may get more of a pullback on Tuesday so I would redo the chart and that’s exactly what I’ve done to reflect this pullback; the thing is down over five percent today. But does this mean you want to stay away from the stock? No. Let me show you something, we’ll take a walk down memory lane. On the weekly timeframe here; this right here is known as a dragonfly dogi, and what it is, you rarely see this simply because of what it indicates, this is a key reversal pattern. Now every time you see this doesn’t mean it’s a reversal pattern because a lot of times there is nothing to reverse, here the downtrend was pervasive, lets zoom out a little bit more. You can see this stock had been trending down for quite a while and so finally we get down here and this was like a final puke fest. All of the longs the remaining traders who were hanging on by a thread, waiting for the stock to move higher, finally they just gave it up this week. Higher volume than average, not as high as it was here, but higher volume than average on this capitulation, but this is again called a dragonfly dogi and it’s characterized by, first of all a very long intra-period here, it’s a weekly chart, it’s a very long intra-period range between the high and the low. The second characteristic is that the open and the close are very, very high in this range; they are very, very close to the top. Here the open was at $10.25 the high was at $10.30. So we’ve got a situation where the stock meets this criterion of a very long tail and then a high close within the range here. What this indicates is a reversal, an intra-period reversal where this stock has finally again just puked out, for lack of a better term, people are hitting the market sell button, I just want to get out of here and then at some magical moment in time and price, traders come in and say, “Well you know what? Wow! This is a compelling buy I’m going to go ahead and take this stock.” And all of the remaining supply is soaked up. Then as the stock starts to move higher, now at this point we don’t know what’s really going to happen, but at this point this stock starts to move higher, then traders rush in and keep buying, and keep buying and by the end of the period here it becomes very obvious that this has become a seachange, it’s been a big reversal of fortunes between bulls who just couldn’t hold out any longer, to bears who finally said, “You know what? I think I am finally done waiting for this stock to go down, I’m going to become a bull.” So you get really a big flip flop here. The bulls become bears the bears become bulls and since that time it took the stock a while to capture the 200-day or 40-week moving average, and that’s actually healthy because the base building process completed. Depending on how you want to look at it you can say this whole thing was a base building process, perhaps so, but man that’s a pretty volatile base. I would just say really from this low here, this was really the base that was built until finally, at the first of the year the stock became in a confirmed uptrend, it was a confirmed reversal, low, high, higher low, higher high, higher low, boom, off to the races. So that’s the weekly chart. Now on the daily chart you can say, “Well wasn’t this a climax high on Friday?” Yes, that’s what I would say. Look at the volume, massive volume, but that doesn’t negate the trend. I mean think about it, if you bought down here, the stock closed 15 percent higher just in a matter of days but it traded much higher than that and then it started to reverse. Wouldn’t you be thinking about selling? I would. You can see it on the chart, one big last gasp, everybody rushes in, hopefully it wasn’t you, and then finally at this point now the stock starts trading down. Well what I’m saying is you have to zoom out, take a longer-term view. Look at this chart, the weekly chart, see that this stock can actually move quite a bit and in the upward direction and also that fundamentally, you know the Baltic Dry Index is actually starting to move higher, it has been moving higher for a while and that’s the shipping rates that people pay to ship. Anyway, so that’s starting to improve and that’s a fundamental change. Diana Shipping ( $DSX Diana Shipping Inc ) is one that’s going to benefit from that so what I would say is, use this pullback as an opportunity to buy, but if you’re a short term trader look elsewhere because that’s not what I’m describing here. What I am describing is a pullback after and extreme climax high and getting it on the dip. As these traders exit the positions, that’s short-term stuff and you look to buy somewhere down in here, now you can zoom out and take a long-term view of the stock. I hope that helps and you might want to compare this analysis with the one Jim Cramer makes tonight on “Mad Money,” I’m sure his is going to be a little bit different but it’s based on these charts. Anyway, thanks a lot. Members get over to the Strategy Session now. Free Chart