I am beginning to rebuild the position in dry bulk shipper DryShips (DRYS) on the pullback to the first support level, the 50 day moving average ($85), with purchases here in the $85-$86 range. This takes DryShips up from 0.9% to 1.6%. As with all purchases at this time I’m going at a very slow pace, but I do find this name compelling. However, much like solar stocks this is exactly the type of name that can correct 30% in 2 weeks, so I tread cautiously. Speaking of which the stock is down from $116 to $85 in 6 days, or 27%. Maybe I should say these type of names can lose 30% in 1 week….

I have changed my tune on the mid term outlook in the industry (more bullish) as outlined in [May 22: DryShips - Earnings Growth Continues & Potential Deepsea Oil Drilling Play]

Now I, in general just prefer to own the physical items these shippers are moving around the world, but there are some interesting developments happening in the sector. First, it takes time – and money to build new ships. One longer term issue I had with this sector [Oct 23: A Near Term Top in Dry Bulk Shippers] is the potential of a flood of new ships coming out in 24-36 months. While some are pointing to the ‘credit crisis’ as a reason it might be harder to fund new ships, I think this is more of a US/UK issue – there is enough petrodollars out there to finance whatever is needed in this world. But these recent stories about the ever higher steel costs might be a true impediment [May 17: WSJ - Fast Rising Steel Prices Set Back Big Projects]. Now on the flip side to that, this is a tricky “reason” to buy companies in this sector because while it might be considered a “pro” for the sector, the same reason would be a “con” for the global economic growth engine, which is what is the underlying story behind these type of stocks.

I’ll continue to pick my spots, but due to caution on the market as a whole, I won’t be buying much – but as I did Friday buying a bevy of stocks down 15-25% or so (in about a week’s time) we’ll make some selected purchases along the way. Of course, there is no guarantee the market will fall further. Just my hunch; otherwise I’d be adding more of this name at this support level. Since the rise in price has been meteoric we have very little in the way of support once we break below $80 – hence in a true market selloff we could be easily looking at $65. This would be a nice area to add more.

Long DryShips in fund; no personal position but could change

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