Popular stock Dry Ships Inc (DRYS) recently formed a major trend exhaustion (possible reversal) pattern that is worth further study.  Let’s look at this pattern and what it may mean for the stock.

Price rapidly increased from $20 to $130 throughout 2007, while collapsing at the end of the year, which brought us to the price lows of $50  at the beginning of 2008.

Now, price has resumed its daily uptrend and formed a clean swing pattern that took price back to $115… but wait!

Earlier this month, price formed an exhaustion or euphoria pattern which will become one of two patterns:

1.  A trend reversal (meaning lower prices are yet to come)
2.  A clean retracement (meaning higher prices are yet to come)

What’s interesting to me is the cleanliness of the patterns that occurred.  There are two overarching patterns that set-up that I want to draw educational attention:

1.  Exhaustion Gap
2.  Bearish Engulfing Candle

Both of these would signal greater odds for the trend reversal case, but there is an interesting overriding factor.

There appears to be strong support via the 50 and 200 period moving average on the daily chart; the 20 period moving average at $80 on the weekly chart; and the recent swing high at $85 from the prior price swing.

Note also that there was a new momentum high on the price chart, meaning higher prices could be yet to come PROVIDED that the recent pattern was not a euphoric (or climactic) trend reversal where everyone who wanted to buy, has already bought, meaning there are few if any further buyers to push price higher.

Let’s continue to watch this development and how these interesting potential reversal patterns might play out with such solid support beneath price at the $80 level.