Can DryShips Inc. (DRYS) Defy the Skeptics?

This article highlights the broad-market patience among the investing crowd, who have "learned to take lavish fleets of corporate jets and outlandish executive bonuses more or less in stride" during the past year. However, the Motley Fool argues that DryShips (DRYS: sentiment, chart, options) shareholders have taken it on the chin more than most, thanks to the shipping issue's "triple play share dilution."

While it would be easy for the Street to forgive DryShips' latest dilutive transgression, the columnist says, controversial CEO George Economou "does not have a clean track record." In fact, some of his fellow shipping execs agree, including Genco Shipping (GNK) Chairman Peter Georgiopoulos, who once suggested that Economou is "play[ing] games with their shareholders' money." On that same note, the author points to a recent warning from Anastassis Margonis, president of Diana Shipping (DSX), who cautioned that his peers' insistence on proceeding with orders for new vessels could end in "disaster for the shipping markets."

The Fool seconds Margonis' theory; according to the article, the impact of failed ventures could result in an "unwelcome domino effect rippling through banks, shipping companies, and even the shipyards." In fact, says the writer, with vessels selling for a 60% discount and bankruptcies a growing possibility, the sector's "weak medium-term outlook" is becoming more evident.

Contrarian Takeaway:

Technically speaking, the shares of DRYS have sailed higher recently, outperforming the S&P 500 Index (SPX) by an impressive 46% during the past 60 trading sessions. The best stock for 2010 is now attempting to find a foothold in the 5 region, home to its 10-week moving average, which hasn't been breached on a weekly closing basis since mid-March. Furthermore, the June 5 strike is home to roughly 12,000 open put positions, which could provide options-related support in the near term.

On the sentiment front, not everyone agrees with the Fool's humdrum outlook for DRYS. In fact, just this week, brokerage firm Dahlman upgraded the stock to "hold" from "sell." Plus, there could be more where that came from, as Zacks reports that only one of the six ranking analysts rate DRYS a "buy" or better. In addition, Thomson Reuters pegs the average 12-month price target on the top stocks for 2010 at only $4.79, representing a 24% discount to the security's intraday high today.

Should fundamental concerns ease and the stock's muscle on the charts continue, the bears among the brokerage bunch could abandon ship. A fresh wave of upgrades and/or price-target boosts could help DRYS sail higher in the near term.
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Highest Option Volume for the Week Ending Monday, May 18, 2009
Ticker Symbol	Call Volume	Put Volume	Total Volume*	Put/Call Ratio
Spdrs(SPY)	276,970	423,878	700,848	1.53
Bank of America Cp(BAC)	393,026	170,308	563,334	0.43
Citigroup Inc(C)	358,706	170,009	528,715	0.47
S&P 500 Index(SPX)	238,569	205,343	443,912	0.86
Nasdaq 100 Index Trckng Stck(QQQQ)	184,431	183,044	367,475	0.99
Ishares Russell 2000 Index(IWM)	71,355	172,664	244,019	2.42
Sel Sec Spdrs Fd Financial(XLF)	57,824	72,371	130,195	1.25
Microsoft(MSFT)	74,781	17,118	91,899	0.23
General Electric Co(GE)	49,689	33,673	83,362	0.68
Russell 2000 Index(RUT)	42,769	39,613	82,382	0.93

Highest Option Volume Compare to Average Volume for Week Ending Monday, May 18, 2009
Ticker Symbol	Call Volume	Put Volume	Total Volume*	5-week Avg Volume	Volume Ratio	Put/Call Ratio
Bp Plc (BP)	1,437,817	19,859	1,457,676	413,244	72.40	0.01
Cnooc Ltd (CEO)	178,467	1,618	180,085	47,250	110.30	0.01
Ei Dupont De Nemours Co (DD)	299,073	10,013	309,086	87,258	29.87	0.03
Emerson Electric Co (EMR)	216,535	6,829	223,364	69,718	31.71	0.03
GeoEye Inc (GEOY)	8,427	9,557	17,984	5,535	0.88	1.13
Plum Creek Timber Co (PCL)	187,662	1,476	189,138	51,346	127.14	0.01
Petrochina Co (PTR)	675,148	4,194	679,342	175,857	160.98	0.01
SAP AG (SAP)	186,251	22,013	208,264	61,769	8.46	0.12
Total SA (TOT)	173,672	882	174,554	46,391	196.91	0.01
United Technologies Cp (UTX)	421,816	12,204	434,020	133,339	34.56	0.03

 

Currently, many retail stocks appear to be overbought, which is something to consider if you are overweight this sector. Along these lines, the S&P Retail SPDR Fund's (XRT) put/call ratio is at relatively high levels and trending higher, indicating that the trade could be getting a little crowded. However, as long as the XRT put/call ratio continues to trend higher, we'd expect pullbacks in these names to be buying opportunities. Technically speaking, Netflix (NFLX) and Amazon.com (AMZN) have rallied 24% and 46%, respectively, so far in 2009, while Buffalo Wild Wings (BWLD) has soared more than 36%. By comparison, the SPX is sitting on a year-to-date loss of 2.14%. Despite this strong technical backdrop, there is a wealth of pessimism levied against these hot stocks for 2010. Specifically, NFLX sports a short-to-float ratio of 33%, while 10 of the 13 analysts following the shares rate them a "hold" or worse. Elsewhere, 29.5% of BWLD's float is sold short, while six of the 11 brokerage firms covering the stock rate it a "hold" or worse. Should this wealth of negativity start to unwind, we could see additional gains from these select names within the retail

 

The energy sector has come on strong recently, with the Select Sector SPDR Energy Fund (XLE) soaring more than 28% since setting a near-term low in mid-March. Growing confidence that the global economy is contracting at a slower pace has also helped push crude oil prices steadily higher, with the July futures contract treading water just below the round-number 60 level -- a region that crude has not seen since November 2008. As far as the XLE is concerned, the stock's 50-day buy-to-open call/put volume ratio on the International Securities Exchange (ISE) and the Chicago Board Options Exchange (CBOE) is turning higher from its near-term lows, and should prove to be a bullish sign for the sector. However, traders should avoid big-cap best energy stocks, such as Exxon Mobil (XOM) and Chevron (CVX), and focus instead on companies similar to Fuel Systems Solutions (FSYS). The company is coming off a strong earnings report, and the shares are up more than 88% since setting a low of 9.83 on March 17. There should be more fuel in the tank for FSYS, as nearly 27% of the stock's float is sold short, while the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.92 ranks above 77% of all those taken in the past year.

 

While the health care sector started 2009 off on the right foot, developments in Washington, D.C., quickly brought the group to its knees. Specifically, some analysts are speculating that President Obama's budget could cut significantly into the Medicare HMO funds put in place by the Bush administration. According to those analysts, these cuts in Medicare Advantage could eliminate 10% of the money that HMOs get from the government for covering Medicare patients. As a result, the normally defensive AMEX Pharmaceutical Index (DRG) finds itself lower by more than 7.6% so far in 2009. What's more, the index has recently encountered resistance in the 250 region. This area is home to the security's declining 20-week moving average, as well as its July 2002 low, which held as support on a closing basis until the index's breakdown in February. Meanwhile, sentiment toward the health care sector remains heavily bullish. Specifically, 52.12% of the 1,248 analyst ratings on health care stocks are "buys," compared to only 4.01% "sells," according to Zacks. Any downgrades for this group could have a negative impact on the pharmaceutical sector.