Baltic Dry Index Is Down Up Down

Many analysts follow the Baltic Dry Index (^BDI) as a gauge on the possible future pathway of commodity prices.  The Index is a survey of what it would cost to ship certain raw materials by sea, which can sometimes be a leading indicator of commodity prices (supply and demand) themselves.  Let’s look at the Index both on a weekly and daily frame to see recent strength… which gave way to even more recent weakness.

Remember that the CRB Index (^CRB) (and Crude Oil particularly) peaked in late July/early August 2008 while the Baltic Dry Index ($BDI) peaked two months earlier in May, giving a leading relationship.

Recently, the index bottomed in December 2008 though the CRB Index made a lower low in February 2009.  Look at the chart of Crude oil and a few other commodities to see a very similar “rounded reversal” pattern that took place into these lows.

The main takeaway is that the $BDI bottomed in late 2008 and then more than doubled in price  into the March 2009 highs… though the index has fallen 50% from that level.  To say the $BDI is a volatile index is quite the understatement - luckily, commodities themselves do not fluctuate so wildly.

Some analysts are reading future economic strength into the apparent bottoming-out of the Baltic Dry Index.

Let’s see the $BDI and $CRB relationship recently on a daily chart.

Baltic Dry Index and CRB Commodity Index Daily:

I’ve scaled the $CRB Index on the left axis and the Baltic Dry Index on the right axis.

If there is a 3 or so month lead, then this would indeed suggest that the $CRB might have further to run, but that possible weakness is ahead after the strength.  In other words, we’d possibly expect to see a similar (though not in percentage term) arc up then arc down in the broad CRB index.

Either way, at the moment, it appears that the CRB Index (along with crude oil) is completing a “Rounded Reversal” pattern which could have slightly further to run to the upside.

Continue watching the Baltic Dry Index and CRB Index for additional clues as we get more daily data.

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