In this environment, unlike most of the past 2 months we have to pick spots and assume our purchases (as we layer in) will lose money in the near term. This is different than when we buy a pullback in a market that is generally in an uptrend (mid March to late May) – where when you make a purchase on a pullback, you expect a quick bounce. So with that in mind, I am continuing to rebuild a position in DryShips (DRYS), the dry bulk shipper (with deep sea drilling thrown in); but not expecting any sustained move up in the near term. But my first buy target has been reached, so I am executing a purchase.

Now, as the rest of Wall Street joins my thesis (eventually) of a global slowdown these stocks could take it on the chin from a perception point of view, but the reality is there is no way China cannot keep importing energy (coal) or fertilizer, lest its people go without heat or food. But perception is everything so as the global slowdown thesis picks up, we could see these stocks unfairly take a hit.

If I were interested in expanding the portfolio I’d also add Excel Maritime (EXM) here right below $44 as its lost 18% in 4 sessions, but instead of building a mini basket of names in the sector I am just sticking with DryShips as it pulls back to its 50 day moving average of $85. The 200 day moving average is right below at $82, but this is one volatile stock where moving average really don’t mean much. If the market falls out of favor this could be a $65 stock in a heartbeat, so I won’t be applying the same discipline in this name as I usually do (i.e. cut it back severely if it fells below $82) We’ll just look to make this a more material position if it does indeed take a serious haircut. Today’s purchase takes this back up to a 1.75% stake in the fund. Remember, with this name we have the future deep sea oil drilling bunny as a bonus. [May 22: DryShips - Earnings Growth Continues & Potential Deep Sea Oil Drilling Play]

If we do get a more serious pullback ($60-$65 range) I’d like to take this to a 3-4% stake. But in case the market stages a nonsense rally, at least we have something material in the stock. Again I am throwing in a few buys on the long side here or there, but not with any urgency since I believe we are prone to more downside.

Long DryShips in fund; no personal position

Last 5 posts by Trader Mark

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