Dry-bulk shipping is not a sector that usually pops up on our radar, but over the past year, these shipping stocks have been pushing forward with conviction. The story is simple. China's demand for bulk raw materials, especially iron ore, is insatiable.

If you're looking for a leading indicator of global demand, the Baltic Dry Index, which is an index of bulk-material shipping rates, is probably a good place to start. Shipping rates as measured by the Baltic Dry Index continue to push out to new all-time highs.

Baltic Dry Index

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The reason for the rise in shipping rates is the increasing demand from China with a shortage of actual dry-bulk ships. This looks like a profitable equation for existing dry-bulk shipping companies.

The window of opportunity in this group is probably limited to the end of this year. The skyrocketing shipping rates mean that new ships are being built and existing ships are being converted to bulk carriers. Constructing new ships and converting existing ships will take time, so the shortage of shipping capacity should exist for a while.

This sector was moving strongly to the upside before the market rolled over, and the correction may have created an opportunity to get back into this group. Two stocks that look interesting are

Dryships

(DRYS) - Get Report

and

Genco Shipping

(GNK) - Get Report

.

Dryships is the most dynamic stock in the sector and has moved out of the bullish consolidation formed last month. DRYS is now making new highs and showing that the bulls are picking up where they left off with the name.

Genco Shipping is breaking out of a bullish consolidation pattern and is in a good spot to buy. The breakout in GNK shows us that the stock is moving back on the offensive, and the bulls are looking to take this stock higher as well.

This story seems to be fairly mature, so we're not early here, but it looks to us like it has another leg to the upside. As long as we continue to see strong demand from China, these stocks should perform well through the end of the year.

But remember, these are fairly thin names, and if dry-bulk shipping rates turn down or the prospects for Chinese growth suddenly changes, these stocks can reverse course quickly. Use fairly tight stop losses and look for the upside momentum to continue in the coming weeks.

At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.