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No doubt the Baltic Dry index has had a rough start to 2012, losing over half its value in just the first month of this year. Is the Baltic Dry index a leading or lagging indicator for the future direction of the S&P 500?
The Baltic decline has caught the attention of many investors of late, judging by the number of posts on the internet recently. The Baltic doesn’t have the best predictive track record for 500 rallies or declines, as can be seen in the 15 year chart above.
Of interest or oddly enough… when the Baltic reached the gray price zone above, the 500 index more often than not was closer to a short-term low than high.
Do you think/feel the Baltic Index is sending a message of confusion or direction?
Please have a look on the HARPEX Index, it´s not better!
No economic recovery. Only money seeking “a save haven”, switching alternately from risk to safety.
Been following this indicator since the early 90s and it took back and forth discussions with older traders, who had used it for many years, to realize it has been considered a coincident indicator and little else. Scrappage rates have fallen with the resale market, but, not to rationalize the index (bad thing to do, bias wise), it should be viewed from a mean reversion perspective. The fundamentals will adjust over a 6-12 month timeframe. The one index which generally will trend longer than the other is the SPX when rising. Bulls usually tend to disparage this index because of recenct effect. As the SPX trends upward longer than the cost sensitive BDI the bulls dislike using this index for confirmation bias…unless it’s rising.
Jason….Awesome post and couldn’t have been said ANY BETTER!!!
Thanks for sharing this message, LOVE IT,
BDI – is all about shipping rates correct? Has anyone read if there are actually more ships sailing the 7 seas as compared to years past? I seem to remember that 1. it takes several years for ships to be built and 2. back when we had the large spike starting in 2006 it was more about the actual number of ships available to transport goods being limited as opposed to an exponentially larger number of goods being produced and thus shipped. So as supply of ships was short and demand for goods was growing BDI “rates” would naturally increase. Could such an increase or overbuilding of ships lead to a less than usful economic indicator – BDI?
Interesting how the s&p had major declines while the Baltic was dropping to this level in the past but not this time.
First I would like to say you do really great work.
In most instances BDI decline as correlated well with a stock market decline. However, we are seeing a decoupling taking place which I feel should serve as a warning that the real economy isn’t doing great and no matter how much the Fed does eventually the markets will catch up to this reality.
It looks like it should be bullish to me except for the rate of decline. It looks like this is a cliff dive and the bottom may not be in.
I believe the answer to the question in this post’s title should be “neither”. To frame it as a yes or now is misleading. I love the work on this site, but this analysis smells a classic case of data mining. It seems a bit one sided to only show the instances where the baltic serves as a bullish / leading for the s&p. I think the false signals evident in this same overlay supports the opposite case.
It all depends on how you extract the information.
The BDI being a gauge of shipping freight rates indciates that shipping rates have imploded and if what I have read is true there are ships laying idle right across the globe, ships that have to be paid for.
Latest estimates are that shipping conglomerates owe banks(mainly European) over $500b, estimates are as high as $750b.
Forget Greece and Portugal for a moment, this could be the next big crisis if rates continue to plummet!!
Hi Chris –
Never realized that we had positive divergence back in 2001/2002. Thanks for the long term charts you publicly post – GREATLY APPRECIATED.
Interestingly about this 2001 timepoint, the BDI turn back UP marked an SPX TOP! Upon the turn back up, SPX then proceeded to fall 29% in 7-9 months – that would take us from this point down to SPX 934 by Halloween. (scary)
For this week, I’ve got trailing stops on all longs (go Russell!) 🙂
And I’m still going to enter QQQ’s and ERX on all intraday/morning bullish reversals from sell offs.
Thanks for the chart!