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Are the Baltic Dry Index Telling Us to Expect a Weaker Stock Market ?
January 19 ( From Stockcharts, Articlebase, CPB, Investmenttools.com )
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The Baltic Dry Index is a shipping price index created by the London based Baltic Exchange.
It measures changes in prices of transporting dry bulk cargo such as grain, cocoa, phosphates, fertilizers, animal feed, oil, coal, iron ore and metal by sea.
The Baltic Dry Index is calculated by taking the time charter components of the Baltic’s capesize, panamax, supramax and handysize indices (Baltic Exchange).
Multiple geographic routes are taken into consideration in the calculation of all indices
The Baltic Dry Index ( BDI ) as an Economic Indicator
The Baltic Dry Index is considered an excellent gauge of global trade. The Baltic Dry Index measures the demand and supply of dry bulk shipping capacity. An increase in demand for dry bulk shipping capacity indicates growth in trade of bulk cargo which is often raw material for intermediate or finished goods. This points to growth in consumption and general economic health.
The Baltic Dry Index is considered an impartial leading indicator (predictor of future economic activity) because it is free from speculation. Nor is it subject to many adjustments and revisions. The Baltic Dry Index indicates the real demand and supply for dry bulk cargo space. Only those who have cargo to ship will buy space and anyone with the available space would supply it because it’s very costly to keep an idle ship.
The Baltic Dry Index Trend
The first chart below ( from 2000 tol 2014 ) shows the BDI trend since 2000. Observe that from mid-2008 to the beginning of 2009,
it went from 11,000 to as low as 650...And from the beginning of 2012, it did a series of lower lows, indicating a bottom is in the process
of being made...
The Index is still within the macro downtrend and did not break the major downtrend resistance line from mid-2008...
On a shorter term basis, as each end of the year were we can see a huge correction ( driven by seasonality factors ) and there after a grind back starting in February of each year.
Observe the seasonality at the of each year: see ellipses on the chart below...
Are the Baltic Dry Index Telling Us to Expect a Weaker Stock Market ? $MACRO, $STUDY, $SPY, $SPX, $ES_F
Baltic Dry Index and SP500
As we can see on the chart below, it does not have a direct link between the Baltic Dry Index and the SP500 at all. So the fall of the past few weeks should be considered only a seasonality factor from the BDI Index. Only making new lows ( 647 ) will bring a warning signal...
Baltic Dry Index ( Candles - Right Scale )
SP500 Index ( SPX Black Line - Left Scale )