DRYS chart is in danger.

The shares are plunging 9%. We have said a couple of times before that they were due for a breather, but the shares have fallen though their first support level, on some potentially disturbing news.

From a fundamental point of view, the picture is very good, earnings and expectations are both improved further, the dry-bulk day shipping rate index is at record high, and the company is firing out of all cylinders.

We’re not the only one seeing a rosy fundamental picture, a Jefferies analyst reiterated his “Buy” rating on DryShips Inc., saying shares of the Greece-based bulk shipper are attractively priced after the company posted better-than-expected first-quarter earnings.

However, there was a bit of concerning news out that could have implications for the sector. China has been hoarding iron ore with such abandon that many of it’s ports got severely congested. They’ve imported much more of the stuff than they’re currently using in steel production (because of speculation and improving bargaining positions vis-à-vis miners).

Severe port congestion in China, due to the large port iron ore stocks, has also helped push up freight rates for dry bulk cargoes to new records. The benchmark Baltic Dry Index hit a fresh high of 11,793 overnight.

That might now come to an end. This could have pretty serious repercussions for shipping rates, on which DRYS is very dependent.

From a technical point of view things are not so good either:

The first support just under 100 now seems broken (unless we stage a hefty recovery in the last hour or so), new support is around 80 dollars.

What to do? If you’re in, we suggest selling some and take a stop-loss on the rest. This thing can be VERY volatile. If shipping rates turn, this will not go unnoticed. It might all blow over, iron ore is not the only stuff dry-bulk shippers transport.

However, that BDI index is extremely difficult to predict, and very finely balanced. Small disruptions here or there get magnified in those day rates and reverberate through the stockprices. Of all dry-bulk shippers, DRYS is the most dependent on these spot rates, so the most vulnerable.

If you’re not in, we suggest you wait until the picture clears