Shares of DryShips Inc (DRYS) appear to be riding a sea of buying here. Earlier this morning DryShips made my list of stocks advancing amid heavy short interest after gaining more than 50% yesterday. A check of the stock here shows a gain of 30% today. What is truly amazing though is that this two-day gain doesn't even make a dent in drop shown in the daily chart. To see what I mean, check out the graph.

Chart Courtesy of Thomson Financial

A mere three months ago, shares of DRYS were trading near 70. Even after the two-day run, they have only fought their way back to 9. To drill down on the recent action, and to see some levels to watch, we can turn to an intraday chart.

Chart Courtesy of Thomson Financial

Here we get a close up look at the explosive rally. We can also see that today's peak coincided with the mid-November mini-peak near 11. The pullback since testing that short-term resistance comes as the daily chart is approaching an overbought condition.

Similar to what I discussed yesterday about E-Trade Financial Corp, I think we may be in a situation where short sellers may be looking to take profits and buy back their positions. According to data collected by our Quantified Analysis group, 21% of the stock's float is currently sold short. The shares recently bottomed near 3 and have now shown a sharp bounce. Some of that may run have already been fueled by short covering but that doesn't mean that is the end of it.

I think the key here is to watch the intraday chart. With the stock nearing short-term resistance and approaching an overbought condition, you would expect to see a pullback. A lack of a pullback may indicate that buyers are getting anxious and may be willing to chase the stock.