Baltic Dry Index: Close to a Relative Strength Buy Signal vs. the S&P 500

Looking for new leadership or new emerging trends off this dismal market bottoming process? Well, keep an eye on this. The much derided but closely watched Baltic Dry Index (BDI) is very close to giving a relative strength buy signal against the S&P 500.

Reflexive action and outperformance from important market bottoms often show up in changes in the comparative relative strength relationships. Buy or sell signals in the relative strength database are indeed the ones to pay attention to as they tend to not only help in identifying superior moves but also stay in place for a long time – on average for two years.

Take a look at the following chart. Not the type of chart you are likely accustomed to seeing. A little interpretation and simplification. First, ignore the values on the left and right – they are present simply to help plot the chart and identify buy and sell signals. Concentrate on the columns of Xs or Os. The series of higher highs and upside breaks of Xs shows the Baltic Dry Index outperforming the S&P 500 on a relative basis whereas the series of downside breaks and lower lows of Os shows the relative underperformance of the BDI.

The date of the last BDI/S&P 500 relative strength buy signal? September 7, 2006. The performance of the BDI to the July 2, 2008 top? 194%, versus a 2% decline for the S&P 500.

Stay tuned.

click to enlarge

Disclosure: The author's firm sub advises on SEA, the Claymore Delta Global Shipping ETF.

Comments

[User 265729:]

The Baltic Dry may be "up," but this means absolutly ZERO right now. There are other factors right now that are giving the Baltic Dry a small bump.

I'm not sure if you totally understand the Baltic Dry fully, but they only approach a "break even" point when it reaches about 3,000, maybe more depending on the country, carrier, etc. To make a profit... Nowhere even near that right now.

To relate the Baltic Dry to the S&P, Dow, etc, especially in the current climate, is not appropriate. Right now the markets are "shills" for government intervention. How high is the Dow and S&P? How big is the latest bailout package? They can't drop about $1 trillion a quarter to support the markets, while the real economy is imploding faster and faster. The world's markets, currently, are all for "appearances"...

When a government, like ours in the USA, makes a statement that they will do "whatever it takes" to turn the economy around, I assume that means lying, cheating, stealing and even killing to get it done.

Jan 28 01:44 PM

[Ecomike:]

While I don't think we are about to go back to the boom days any time soon, I see positive signs to encourage me to buy some dry bulk shippers beyond just the BDI which I am beginning to believe is strictly a very short term spot market indicator. I go into more details in my blog as to the whys, but simply put I have seen news the last 2 months of Cape size ships just hitting the water and getting $39,000 per day long term charters by Cargill, that the ship companies say they will make very good money at, and CArgill is not know for waisting money. EXM and DSX, and IIRC Genco all had such announcements in December and January. I don't think the BDI counts long term charter daily rates on a daily basis, only very short term one trip spot market rates, or at the most the average of rates on newly signed charters the day they are started or signed! Most of the publicly traded shippers have good long term contracts on most of their ships for a good while, maybe long enough to weather this storm, which seems to be hitting the panic bottom already.

I recently bought EXM, PRGN and SB, and sold DRYS when it's CEO pulled his latest stunt.

Jan 28 04:17 PM

[Ecomike:]

I forgot to mention earlier, I can not make heads or tails out of the "chart" in the article, and I have I minor in math, major in Chemical Engineering degree. It would be nice if you posted something most of us ignorant savages could read and understand graph wise, LOL.

Jan 28 05:05 PM

[Urbane Gori...:]

In essence, this is a point and figure chart.... You can check Investopedia.com, or this location for an explanation:

stockcharts.com/help/d...

(Not sure if this site will take, SeekingAlpha tends to truncate http addresses)

jegan


On Jan 28 05:05 PM Ecomike wrote:

> I forgot to mention earlier, I can not make heads or tails out of
> the "chart" in the article, and I have I minor in math, major in
> Chemical Engineering degree. It would be nice if you posted something
> most of us ignorant savages could read and understand graph wise,
> LOL.

Jan 29 12:26 AM