Baltic Dry Index (BDI)

Most of you may be familiar with this term and may have read about or seen charts of this index.

For the uninitiated the Baltic Dry index is not just another chart in the global "stock market" or the "market of stocks" as some prefer to call it, but it is a leading indicator for economic activity and the chart needs to be seen as one.

The index is maintained by the Baltic Exchange. The cargoes being moved are raw material commodities such as coal, cement, and iron ore which are shipped through 20 different routes throughout the world. The index does not concern itself with finished goods or container ships, only raw materials and dry bulk specific ships are factored into the calculation. Hence it measures the demand for raw materials which are pre-cursors to production.The BDI offers a real time glimpse at global raw material and infrastructure demand.

Now the chart :

Notice the fall from 11793 to 693 coinciding with the Lehman Brothers stock market crash when world markets went into a tailspin.

Subsequently this chart has made higher highs and higher lows- up untill now that is.

I have also put a 40 week moving average on the chart and prices are just about there.

So what else can we glean from the chart from a stock market point of view :

1) Economic activity is robust as long as price holds up around here and continues to make higher highs.

2) Economic activity may be slowing down if 2571 is not held on the chart.

3) 40 week MA seems to be flattening, indicating that most of the recovery is already priced in.

Based on the above chart pattern, individual stocks on the NSE like GE shipping, MLL, SCI etc may be at great action points.