Elliott Wave on the Baltic Dry Index

Dec 3, 2008: 2:26 PM CST

A reader requested an Elliott Wave count on the Baltic Dry Index to compare that count to the $CRB or Commodity Index to note any differences.  Let’s compare the two indexes and price structures.

First, the Baltic Dry Index is mainly a survey of the price of transporting raw materials.  From the Wikipedia article, the official definition is “…an assessment of the price of moving the major raw materials by sea. Taking in 26 shipping routes measured on a time-charter and voyage basis, the index covers Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain.”

It is also known to provide information on global trade as it is an “accurate barometer of the volume of global trade — devoid of political and other agenda concerns.”

Compare the count to my recent Elliott Wave Interpretation on the CRB Commodity Index.

That being said, let’s take a look at it on the Monthly and Daily charts (via StockCharts.com).

The count is similar to that of the CRB, with a little more confusion around the 2004 – 2006 period, and the pronounced Wave 2 triangle that formed just before the start of the explosive Wave 3 rally from 2006 to late 2007.

Since wave 2 was relatively orderly, it would make sense to expect a sharp or steep (violent) Wave 4, which is what occurred as the index plunged from 11,000 to 6,000 in three months’ time, finding support at the rising 20 month EMA and rallying up into the final 5th Wave impulse that formed on a negative momentum divergence (not shown).

Just like the CRB Index itself, the most recent corrective phase (Wave A) was brutal, much moreso on the Baltic Dry Index, as price careened six months in a row from 11,500 to the current lows at 700 – a roughly 90% drop.

What does that mean?  Other than being cheaper to ship goods across the globe, it means that global trade is suffering tremendously and that’s not a great sign for bullish hopes.  It seems the reality of a global recession has taken hold, and I’ll allow you to read into that what you may.

Let’s take a look closer at the 2005 to 2008 rally… and mid-2008 implosion to get a better view on the possible Wave Count.

Baltic Dry Index Weekly:

I know that spanning such distance and price levels is better done on logarithmic charts where percentages are revealed better, but I enjoy looking at equal price changes so I can better measure equal (or relative) price moves. I would recommend also taking this count to a log-chart as well.

Price broke above a triangle pattern in July 2006 into a Wave 3 major impulse (which subdivided into two fractal waves – third waves can be particularly dramatic) as the EMAs crossed bullishly shortly after.  Notice that the EMAs did not cross back bearishly until around September 2008.  Signals from moving averages always come late and are best used – in my opinion – as viewing components of price structure instead of using them as solitary bases for making trading decisions.

The final 5th wave formed on a negative (flat-line) momentum divergence before price reversed precipitously into major lows beneath 1,000.  While there are positive momentum divergences forming on the daily chart, the picture still isn’t wonderful for this Index it would seem.

If the Corrective Wave A is completing, we would expect a B wave to take us back up perhaps to the 4,000 level or beyond, but be careful in the wake of such dramatic price devastation – the structure has clearly been affected.

Corey Rosenbloom

Afraid to Trade.com

2 Comments

2 Responses to “Elliott Wave on the Baltic Dry Index”

  1. Anonymous Says:

    excellent post, as usual.

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