Seeking Alpha
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.
-
Instablogged Stocks
Stocks that instabloggers have most recently written about -
Latest Instablog Posts
-
1
Alcoa Earnings - If They Beat, Sell the Open
-
2
First Quarter Trends Still Up In the Air
-
3
"US Jobs Week" Wednesday Alert: Four Key Rel...
-
4
Crude Oil in Ascending triangle - watch for ...
-
5
CHART OF THE DAY-AMZN
-
1
-
Top Instabloggers
See all Top Instabloggers » Top StockTalkers »
Speculator Money Still Pervades Shipping Stocks 4 comments
On Thursday, one of our Trading Room members asked my opinion on holding DRYS options through their earnings announcement, and I had to give my frank opinion -- that it was simply too dangerous given the current market sentiment. I think the trader was disappointed to hear that and had been hoping for a bigger win after the announcement, considering that much of the market seemed to expect good numbers from Dryships. But sector conditions seem to require caution still.
If you've been following my shared trades on the shipping sector, you will know that my current strategy is:
(1) Buy calls at or before the announcement of the earnings release, (2) sell them the morning preceding the earnings release, somewhere near about 10:30am, (3) If you want to try to parlay the play further, move the money into equity instead, and set a GTC stop loss order to protect profits, and try trading in the after hours.
Here's my rationale. Because of the price declines and widespread loss of dividends in the shipping sector, valuation has dropped out and there is not the usual price protection one can expect of an stock with a solid dividend. Instead the names are being supported by speculator money, which is not interested in making the stock a long term hold. Speculator money is short term money, and therefore there is not the normal buildup of support one can usually expect from an improved earnings report. DRYS in the last 3 days is a perfect example. Despite its propensity to outrageous shareholder dilution, DRYS remained the volume leader of the shipping sector, and a positive buzz about its earnings was attracting new money, causing the price to rise slowly. The announcement was made after the market close on Thursday, and it was a fairly good one, causing the price to shoot up to $7.23. Under usual conditions, the stock would gap up the next day and a new uptrend would begin, but instead the stock sold off violently and fell to close under $6.60, with a continued downtrend the next day.
Clearly, any holder of options could have found themselves with a disappointing loss. What happened? Most of the money in the stock was highly mobile, and speculators now wanted to withdraw their profits in order to put the money to work elsewhere. This started a fast selloff. Longer term money was too weak and failed in its attempt to support the stock at the new price level.
Holding equity through the earnings announcement would have been a better play. With the equity, manual trading could have protected the investor in the after hours, and a GTC sell order might even have caught the spike up over $7, resulting in a nice profit.
When should the options position have been sold? I had to chop off the pre-earnings day chart to make it fit, but sure enough, the stock price had peaked at 10:30am Thursday morning, and that would have been the ideal spot to cash in the options.
You can see what this means for DRYS: It's not good. On the chart, look at the volume spike at the opening, indicating that an enormous number of people bought the stock as it was being dumped by the speculators, and those people mostly paid $6.90-6.95. That price zone, full of unhappy new stockholders, is now a new resistance area. DRYS will not easily or quickly penetrate it to go to $7 now.
Shippers are still one of the most oversold sectors in the market, in my opinion. But being oversold is not enough to make them good for the medium or long term. The sector needs one or two dividend reinstatements to really begin strengthening. That could happen this quarter, but I doubt it. In the meantime, keep in mind the 3-step strategy outlined above, and remain extremely cautious. Good luck!
by Skymist
Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.
This post has 4 comments:
"Shippers are still one of the most oversold sectors in the market, in my opinion. But being oversold is not enough to make them good for the medium or long term. The sector needs one or two dividend reinstatements to really begin strengthening. That could happen this quarter, but I doubt it. In the meantime, keep in mind the 3-step strategy outlined above, and remain extremely cautious. Good luck!"
This clearly is a technical trader's perspective. Wait until there is momentum FIRST before testing the waters.
What I'd like to point out is that once these dividends are re-instated, it will already be too late for the most pronounced and most profitable portion of the stock's rise. The key is to be aware of the company's ability to re-instate, or to continue with ongoing dividend payments BEFORE others are aware of it. This requires poring over the financials.
I haven't been following shippers lately, (last time I looked, DRYS was above 15), but I do know there are less risky bets out there besides DRYS from a fundamental basis, ESEA being one of my favorites. Still, I am more or less fully invested and am looking to hedge going into the winter, not accumulate more positions.
Good luck with your investments.
I think you are being too critical of the use of technical tools. For those like me, who invest primarily on fundamental analysis of individual businesses and economic outlook, I use those tools to decide what I want to own and what I am ready to sell. I use technical tools to help me decide WHEN to buy or sell. I find this process has often helped me to get into positions that are ready to move in my favor. It makes it easier to establish stop loss protection that does not get me quickly stopped out with a double digit (percentage) loss.
Someone just pointed out to me on one of my articles that the 200 moving day average just broke resistance recently. In my mind, I could only ask, "you are only BEGINNING to invest?"
On Aug 05 07:36 AM sleepless_on_wall_street wrote:
Latest Followers
StockTalks
-
about 13 hours ago
-
1 day ago
-
1 day ago
More »Posts by Ticker
Latest Comments
Most Commented
Posts by Themes