Dry Bulk Shippers - Time to Get Back In?

I was quite negative about all the hoopla surrounding the dry bulk shipping stocks back in early October [A Chorus for Dry Bulk Shippers - Enough Already?]. Mania conditions were apparent in both the stock action and the breathless love for all things dry bulk. Now, 4 months later, the Baltic Exchange Dry Index, which represents spot rates for these ships, has been cut by nearly 45%, and a lot of speculators in these stocks have lost a lot of money; the vast majority of which of course bought at the top and sold at the bottom.

I did try a quick foray myself into Excel Maritime in November, since the stocks had dropped so precipitously [Adding Excel Maritime (EXM)], but quickly cut my losses as there was no end in sight in the downturn. There are a multitude of names in this sector, but the "momentum favorite" and stock most affiliated with spot rates is DryShips (DRYS). While most of my concerns still remain in the "long run", I could see a potential medium term trade developing here as most of the speculators have been burnt and probably view dry bulk with utter disdain right now (much like they view Google, Baidu.com or Apple), and the emerging weather related crisis in China [China has Power Outages; South Africa has Power Outages] could provide a nice catalyst; along with the coal and agriculture themes I talk about nearly daily. So with the prices more reasonable we might have an opportunity here.

Hence, I turn to the technical picture - I am going to focus on DryShips and Diana Shipping (DSX) - again there are many names in the group, but I'd prefer to stick to the better known companies. Plus they have some interesting technical situations. [Excel Maritime (EXM) has some overhang from a recent acquisition]. As we can see, both stocks have reversed off long multi month breakdowns, and now have crossed back above their 200 day moving averages. All that is left is to break above their 50 day moving averages and we could have ripe conditions for a move.





Above are 5 month charts. So of course we missed catching the bottom, and the stocks made large moves off those bottoms; but tell that to the countless people who tried to catch what appeared to be bottoms in November, December, and January. So we have a clear rebound, and much like the S&P 500 (or really any index) we show a series of lower highs - in fact these charts are almost carbon copies EXCEPT these stocks did not fall off a cliff last week like the indexes. So we might have conditions for a new breakout, and finally a move higher than a previous high. DryShips seems a bit more advanced than Diana Shipping but both are in similar condition.

While dangerous to buy anything from the long side of late - we might have an interesting sub sector move here, and certainly some relative strength of late. Diana Shipping (aka the more "stable" name) even after this rebound is still down nearly 40% from highs reached last fall, and DryShips (more volatile and tied to spot rates) about 45%. So we have a lot of room to move up, if this move is indeed pure. How long would I hold them? With the shortages in crops, coal, fertilizers, and the like & potential iron ore negotiations finalizing (which has been an issue) - maybe longer than I'd consider in the past. I will be watching these 2 closely this week and on a 5%+ move up, we'd have a confirmation of a technical breakout, and I'd begin a position. Or, if the market continues to break down, and these stocks hold "relatively" steady and can at least hold their 200 day moving averages - this would also be a good sign of relative strength; something in short supply in this market.

No position