Bruce Pile

Preparing for the Dollar's Next Down Cycle

Nathaniel C is so right about the Baltic Dry Index being a better lead view of the stock market than about anything else. The market has a way of figuring things out 6 to 12 months in advance as far as earnings and corporate results go, but the Baltic seems to beat the market to the punch every time.

It is so constructive to examine a Baltic chart. If you look at what it did during the last bear market in '00-'03, you see that it bottomed in late '01 and was getting into a climb during the mid to late '02 period while the stock market was bottoming. And in early '05, the Baltic was down sharply months ahead of the sharp cool down in commodities and stocks in May '06. It then turned sharply up in early '06 while the market came down and months ahead of the sharp market climb and commodity craze in late '06 and early '07.

The Baltic Dry wasn't that much of an early warning for the market moves of '08, pretty much moving in line with the market, perhaps because these moves were precipitated by a bunch of banking/credit crisis mumbo jumbo, not the usual economic cycling the Baltic is used to dealing with. But now that we're back to economic cycling in what is hopefully the aftermath of all that, what is the Baltic doing? Well it bottomed with a technically attractive head and shoulders bottom in early December. It seems to have gotten back into the groove of outwitting the market by a few months, having formed a nice climb over '09 so far with just a 20 day pull back recently that Nathaniel C mentions. It was climbing like mad all during February while stocks tanked 20%.

If the Baltic Dry Index is indeed back to its ways, then the December bottom would seem to predict a significant market turn about 6 to 12 months past December. That was 5 months ago, which predicts a turn over the next 6 months or so.