“I just listened to Friday's upbeat audio and agree it's been a good January thus far. You rhetorically asked what's not doing well?

“I'd be happy to hear your comments on the Baltic Dry Index and how to play it. As always, I appreciate your insight.”

Eoin Treacy's view Thank you for this topical email. There is a tendency among some pundits to assign a “crystal ball” significance to the Baltic Dry Index. However, all it represents are shipping prices. Like any other market these are governed by supply and demand.

In the synchronised global economic expansion that presaged the financial crisis, demand for ships outstripped supply by a wide margin. Companies used this as an opportunity to order new ships and planned to retire older parts of the fleet. Demand collapsed from late 2008 and a large number of ships were delivered in 2009 and 2010. Both these factors exacerbated the pressure on pricing.

Slowing global growth has in all likelihood influenced the recent decline and prices have returned to test the 2008 lows. The Index is oversold by any measure and the first clear upward dynamic is likely to signal a low of at least near-term significance.

The Bloomberg Dry Ships Index has been trending lower since early 2010 and has returned to test the area of the 2008 low near 1000. It has rallied to break the progression of lower rally highs and a sustained move below 1000 would be required to question potential for additional higher to lateral ranging. Here is a Chart Library Performance Filter table of the constituents.


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