This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

DryShips: Ready to Rally

Stocks in this article: DRYS

By Sean Hannon, CFA, CFP, of EPIC Advisors from Covestor.com

In the past, I have discussed how I like to use simple technical patterns to determine trading targets. Among my favorite indicators are trend lines, triangles and fans. This week I examine another powerful tool: Gaps.

A gap occurs when a stock price opens at a level that is much different than the prior day's close. For example, if shares closed the prior day at $15 and opened today at $20, we would view this as a $5 gap higher. Once a gap occurs, the prior day's close ($15 in this example) becomes a key level of technical support.

When prices gap higher, the gap becomes support; when prices gap lower, the gap becomes resistance. Until this new support or resistance level is violated, the underlying trend remains intact and allows us to trade accordingly.

Examining a chart of DryShips (DRYS), multiple technical patterns emerge. As the worldwide recession spread and deepened, shipping rates collapsed -- DRYS' price quickly followed. From a high point of $110.74 in mid-May, the stock traded to a low of $3.54 in late November. This stunning 97% drop over six months created a clear downtrend that was rarely tested.

During this long decent, we saw three gaps lower: from $55 to $50 (9%) in mid-September; from $31.50 to $28 (11%) in early October; and from $18 to $15 (17%) in late October. Each time the stock gapped lower, the gap served as resistance to future rallies.

Since bottoming on Nov. 21, we have seen three gaps higher: from $9.50 to $11 (16%) on Dec. 10; from $12.50 to $13.50 (8%) on Dec. 18; and from $10.50 to $11.65 (11%) on Jan. 2. These levels now serve as support that should allow the stock to trade higher.

Importantly, the last gap higher has broken the long-standing downtrend and has allowed DRYS to close at its highest level since bottoming in November. Combining all the technical signals, we see a reversal in the share price that will allow for a sustained move higher.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs