Dry bulk shipper Dryships (DRYS) ran up over 1200% from the middle of 2007 to 2008 peaking at $131.48 on 10/29/08. The stock has since fallen 96% and returned to single digit levels. By applying simple technical analysis the stock offers a wealth of knowledge valuable for investing in the future.
Commodities were red hot throughout 2006 and 2007 and analysts believed every investor should have exposure to this trend. Like all trends though the party eventually ended and many once leaders were crushed alongside the overall market.
By referring to the weekly stock chart of Dryships below the stock offers five critical lessons about technical analysis and investing in trends.
1. Trends are fast moving and powerful – The run from under $10 in June 2007 to $131 in October 2008 (1200%+) was no coincidence. Institutions were heavily accumulating this dry bulk carrier as commodities continued to soar. Catch a trend right and the profits can be staggering. Furthermore, never fight the trend.
2. Some technical patterns are prone to failure – This “W” shaped pattern for example was considered a faulty base because the 2nd dip was not lower than the first. This is important as it allows the stock to shake out any uneasy holders before moving back up in price.
3. Heavy distribution or accumulation identifies new trends – The two heavy distribution weeks in May and June 2008 were key turning points for the stock. These reversals signaled the end of DRYS’s rally.
4. Tight price consolidation often signals a big move is coming – For over two months DRYS and other stocks in the same group (GNK and EXM for example) traded sideways in a fairly predictable price range. Once the stock broke down below this range though heavy selling quickly followed. Price consolidations can work in both the bulls and the bears favor.
5. Know when to sell and walk away – Any investors holding onto DRYS shares thinking the stock was going to comeback were in for serious trouble. Buying even at $80 would leave the investor down 90%+ now three months later. Either use stop losses or be disciplined enough to walk away from losers before they get too big.
More stock chart examples and lessons below.
- Example 18: A Closer Look at Chipotle’s (CMG) 150%+ Run this Year
- Example 17: Dryships (DRYS) <–- Currently Viewing
- Example 16: The Rise and Fall of Crocs Footwear
- Example 15: 9 Lessons to Learn Regardless of a General Motors Bankruptcy
- Example 14: Identifying 8 Key Points on Google’s Stock Chart