Surging DRYS

Well, since we advised to take a position at 75 a couple of weeks ago, it keeps going up. Look at the graph, again this stock creates some of the best ones around. 

With an RSI close to 80, it’s definitely overbought. However, is it a surprise, what happened? No. Look at the following graph;

It’s not really a surprise that DRYS is up so firmly. It’s almost entirely driven by these spot day-rates for dry-bulk shipping, as we argued before.

What happens next? Well, we argued twice to take some money off, at 85 and 94. We sure hope you’ve got some money left here, but profit taking has never made anyone any poorer.

This latest surge is probably the result of the earthquake in China, an unforeseen event, we can hardly be blamed from having taken that into consideration before it happened.

The reasons we gave the advise to take some money off the table were technical, and also based on our somewhat pessimistic outlook for world economic growth. We have to recognize the possibility that:

  • We’re wrong on our somewhat pessimistic assessment of the world economy
  • Dry-bulk shipping might be on a structurally upward path, despite the dimming world economy.

We actually think it’s a combination of both. Dry-bulk, what is that? It’s mainly coal, steel, grains. Mittal has globalized the steel industry, China is even importing coal, and grains have increased in price.

The traffic in Asia is especially growing. And, of course, that earthquake shook things up, so to speak. This will probably continue for some time, as rebuilding effort requires lots of materials. Enjoy the ride.

As we argued in earlier articles, significant new shipping capacity is not due before 2010. We might have to revise our whole investment thesis on DRYS, which we initially regarded as a rather short-term (so called ‘swing’) trade.

That structural outlook has also been improved a lot by the take-over of a Norwegian deep ocean drilling company, an industry which is bound to be taking-off.

Having said all this, it’s still overbought (it went even further up in after markets to 1.08). With the danger of being premature sellers again we still think tomorrow would be a nice moment to take some money off the table.

But you will probably want to buy it back quite soon.

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