I sense a rotation into beaten down stocks. Watch DRYS.

Several years ago, I was very negative on the shares of the Wall St darling Dry Ships (DRYS).  I had watched the shares go exponential and I was telling everyone who would listen that it was a mania, destined for total collapse.  Even after people heard that the CEO (George Economou) famously said that American investors were "the dumbest around"suckers, people still piled into the shares hoping to make a momentum buck.  And so he just continued fleecing them by making backdoor deals with other companies that he owned where DRYS would have to pay excessive amounts for questionable services.  He ran the stock from well over $100 to $1 and change.  I'm surprised it didn't BK.

DRYS has stayed in the $1-$3 range for a couple years now, and I haven't looked at it 3 times in as many years.  But one thing I always knew was that it was reviled by many many investors not only for being such a Ponzi scheme but also because Economou is an arrogant jerk.  I have seen many people go short on it out of emotions and in the hope that it will BK and they will never have to pay caps gains on their winnings.  But it did not BK and in fact is slowly finished out an ending diagonal.   Here's the recent chart:

 I can see the 5 waves that finished it and it looks fully bottomed now.  Additionally, it is now forming what I strongly believe to be a cup with handle.  A cup with handle is a bullish formation where by a bowl gets formed and then a downward sloping handle is formed to the 38.2 or the 50% fib retracement (happening right now) and then it suddenly reverses and blows skyward in dramatic fashion.  Here is a description of the C+H characteristics from Investopedea:

Depth - Ideally, the cup should not be too deep. Also, avoid handles which are too deep since the handles should form in the top half of the cup pattern. Volume - Volume should dry up on the decline and remain lower than average in the base of the bowl. It should then increase when the stock finally starts to make its move back up to test the old high. Retest (of old high) - doesn't have touch or come within a few ticks of old high.


Volume is one of the most important features of a C+H.  It's supposed to be low volume on the left side and on the bottom and then pick up on the right wall.  The chart above shows a massive volume spike as the price of the stock went from $1.65 to $4.00 in a few months.  That's some pretty impressive gains.  Now it is pulling back and the volume is decreasing.

So here is what you are really looking at: the 5th wave of the bear market finished and now we are seeing the start of a bull market for this stock.  The 1st wave of the new bull has played out and it was a doozie in terms of percentage.  Now the 2nd wave is a vee style retracement. Here's a close up of the 1st and 2nd wave action.  The 2nd wave looks like an ending diagonal that could finish up in the next few days.  You will know it's done when it breaks back up above the top resistance line of the down sloping "handle", especially if the reversal is on increased volume.




If this is the 1st and 2nd waves then of course the 3rd wave is next.  3rd waves are generally the strongest and never the weakest so I expect a massive percentage move upward for the 3rd wave.  Note that all of this started to happen right around the time that Bernanke basically admitted he had no tapering exit strategy.  This is the market's way of factoring in inflation. 

What's really driving the upward volatility on these shares is the short interest.  Yahoo says it's only 3% short but I highly doubt that.  In some form or fashion, this thing is heavily shorted, perhaps through options, perhaps through derivatives.  This kind of positive volume on a $hittsy scam stock like DRYS is not driven by normal buying interest.  Something else is causing panic buying and the only thing that I know which can do that is a short squeeze of some form or fashion.

A couple more things of note:

• The target price for C+H breakout is to add the depth of the cup to the breakout point.  If that happened today, the 3rd wave would take the chart to $5.50.  Another thing to note is that 3rd waves tend to move quickly and with gaps.  Thus, the gains will be quick and you can move your money out after the 3rd wave peters because 4th waves go sideways for awhile.
• You might wonder why I would even consider "investing" in a company that I know to be run by a dirt back elitist $hithead of a man who has a demonstrated disrespect for those owning his shares.  The answer is simple: this guy is the same as all the rest.  He's just more honest about it.  The others laugh at you behind closed doors while drinking expensive scotch and smoking Cubans.  At least Economou pretty much tells people what he thinks.  Besides, buying stocks of ANY KIND that does not pay a sustainable dividend is by definition gambling, not investing.  "Investing" is just completely overused by Wall St. so that good conservative people won't catch onto the scam so quickly.
• I find that Elliott Waves jibes very nicely with legacy technical analysis.  Things like C+H can easily be explained and predicted using the EW principle.  It's just two different ways of remembering that the herd moved in a certain way many times before leading to a rise or fall in share prices.