Baltic Dry Index Up Eleven Days In a Row: Should You Care?

Discussion in 'Trading' started by ASusilovic, May 17, 2009.

  1. The Baltic Dry Index is currently riding an eleven day winning streak during which the index has gained 43%. Year to date, the index is now up 228%. Given that it is a measure of shipping rates, the increase in the Baltic Dry Index is regarded by many as an important indicator of an improving global economy. How this translates to the stock market, however, is unclear.

    Over the long term (since 1985), the Baltic Dry Index and the S&P 500 have had a positive correlation of 0.5 (1 = perfect correlation, -1 = perfect inverse correlation). Like everything else recently, though, that relationship has been turned completely upside down. As shown in the chart below, the S&P 500 and the Baltic Dry Index have been moving in opposite directions for most of 2009. As one has risen, the other has declined, and when one falls, the other seems to rise. Looking at the correlation between the two shows that year to date, they have had a negative correlation of -0.4, which implies a significant inverse relationship between the two. In fact, the only period this year where the Baltic Dry Index declined was during the initial month of this rally, which was one of the strongest one-month rallies the S&P 500 ever had!

  2. Eight


    They were out of synch for awhile, likely. The Dry Ships index is currently comparable to the 2005 levels..

    There has been economic shock and uncertainty going on, maybe the world is shaking it off and starting to get back to business as usual. That's my guess....
  3. No, I do not care because the BDI was ridiculously low. Why wouldn't there be a bounce under that condition?
  4. 1) It's probably best to say that the BDI is a "lagging indicator" with respect to crude oil and the S&P.
    2) Since the BDI had been beaten down so much, any rally off of the bottom will seem to produce a "large" percentage gain. :cool:
  5. Isn't that the "proper" relationship? :cool:
  6. Come on Nazz,

    the "proper" relationship is this piece of news :

    HONG KONG (MarketWatch) -- China's oil refineries processed a record 31.19 million tons (233.9 million barrels) of crude oil in May, a 10.7% rise over the same period a year earlier, according to a Xinhua report Monday, which cited data from the China Petroleum and Chemical Industry Association.

    It´s rising and rising and rising...must be the "China effect"...:p
  7. ....or the "China Syndrome Effect". Take your pick. :cool:
  8. Seems to correlate quite well with the price of crude.
    #10     Jul 20, 2009