Let’s look at a couple of shipping stocks for buy/sell signals.
Discussed in this article: DryShips Inc. ( $DRYS )
I want to look at a case of what I call “the can’t help its.” When traders get a bad case of the “the can’t help its,” what I’m talking about is, they look at a stock, they know they shouldn’t buy, but they just can’t help it. And so finally they do buy and what happens? Well, the stock tops out and it drifts lower and you’re thinking, “Well, I knew that that was going to happen but I just couldn’t help it.”
What I’m suggesting is, just don’t do that. There’s a couple examples here, a couple great examples here in the shipping stocks. Look at DryShips ( NASDAQ:DRYS ) here, see how this stock was in, I won’t quiet call it a volatility squeeze, but it was trading fairly tight. That was a little over $2.00, we’ll call it to 2.10, then it broke out, ultimately it has run clear up to 3.25 before pulling back.
So, as this stock breaks out it’s okay to be buying it a little bit here. Most the time you’re not going to get the stock right at the ideal buy point, but you can get it pretty early if you’re watching it. But what happens is, traders may not see this move, you don’t see this little pullback. What you see is this move, right about here you start picking up on that and you say, “Man, I was looking at that stock right when it was back here waiting for to break out, it never did, I lost sight of it, oh man, what a dummy.”
So you go ahead and buy it here, or maybe here. You’re looking for more, maybe you wind up making a little money on it, but probably not because guess what? Guess where all the volume is? All the volume is on this last up day and then the big old bearish engulfing pattern, the big old reversal here.
So this was definitely a climax high that you had to kind of see coming if by no other way than looking at how extended this was, not just above the 200-day moving average, the 200-day moving average is at about $2.00 or so, the stocks up at over 3.00, so it’s over 50 percent extended above its 200-day moving average. That’s not the thing that should really make your hair stand up; it’s a fact that its so far extended above the 50-day average, which is the faster indicator here; so even on this 50-day moving average the stock is really extended.
Now, let’s look at DSX ( NYSE:DSX ); it’s a little different type of trade. This one was parabolic, it looked like a short squeeze, but by the way, here’s the short interest. So it really wasn’t a short squeeze, this was some kind of buying here. Now, Diana Shipping ( NYSE:DSX ) is a different deal. It was trading in sync, for the most part, with DryShips ( NASDAQ:DRYS ), but it hasn’t been so extended.
So here’s the deal on Diana Shipping ( NYSE:DSX ), this is the stock that I would be more interested in buying on a pullback, not so much DryShips ( NASDAQ:DRYS ), just because the stock is still so far extended. So with Diana Shipping ( NYSE:DSX ), Cramer covered this a long time ago, I think back in March, somewhere around in here, on Mad Money. I showed him my work and suggested that it had a minimum price target of $14.00. It hasn’t quite hit that yet, and it may not hit that, although I think it will.
But what you want to do is wait for the stock to pull back. Where has it bottomed before? The 20-day moving average, it even fell a little below here. But you can see how the real time to buy this stock is at the 20-day moving average, which right now is about 11.50. My bet is you’re going to get it test of the 20-day moving average sometime within the next couple a days.
So you want to wait until you see the first open bar, in other words like the clear green bar, the open green bar. What this indicates is that the stock opened low and closed higher then the open. That tells you that there’s been a reversal, you can see how this stock trended lower here, all these red boxes, and then the first open box here, that was to buy point, then you get a move up here. So you’re going to look for this over here and that’s really when you’d want to be looking to buy with a stop, an appropriate stop, underneath that established support level.