Analysts are taking note of the recent 40% drop over the last month in the Baltic Dry (Shipping) Index, which is often seen as a leading indicator of global economic activity.

Let’s take a look at the weekly BDI chart and then drop the daily frame and compare the chart to the S&P 500:

The weekly chart above shows the Baltic Dry Index from mid-2008 to present.

Despite the scale of the chart, the index has appreciated 400% from its sub-1000 lows in late 2008 at the heart of the economic recession.

Notice that the BDI ‘bottomed’ in November/December 2008, prior to the March 2009 stock market bottom.  The sharp recovery in the BDI preceded the 2009 stock market ’straight up’ recovery, though the BDI became rangegound between the 3,000 and 4,000 level… which is where we have remained for over a year now.

The weekly chart just broke a rising trendline at the 3,000 index value level last week, so we need to keep a close eye on that for any further signs of deterioration – which would be likely bearish for the global economy and equity markets.

Let’s take a look at the short-term daily chart and see how the BDI and SP500 have performed:

The BDI – upper chart – peaked at 4,600 in November 2009 though the stock market continued its rally.

Both formed a swing low in February 2010, though the BDI did not rally to a new high as stocks did in April.

The May stock market sell-off looks somewhat similar to the December 2009 sell-off in the BDI as seen above.

Just recently, the BDI peaked at 4,200 as stocks found a bottom in May/June… only to collapse almost straight down 40% as June progressed.  That’s not ultra bullish for the stock market.

Let’s remember to keep checking the Baltic Dry Index chart – symbol $BDI in StockCharts.com – for any signs of a recovery… or further warning if the index continues its slide.

Corey Rosenbloom, CMT
Afraid to Trade.com

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