WHAT IS THE BALTIC DRY INDEX & WHY I LIKE SHIPPING STOCKS?

Despite the name, the Baltic Dry Index has nothing to do with markets in Lithuania, Latvia or Estonia. Instead, it's all about the cost of shipping major raw materials. Like iron ore, coal, grain, cement, copper, sand and gravel, fertilizer, even plastic granules.

The value for the index is determined by the London-based Baltic Exchange, which traces its origins back to 1744. Each day, the exchange canvasses hundreds of brokers around the world for price quotes on moving goods. For instance: Shipping 100,000 tons of coal from South Africa to Japan, or 50,000 tons of iron ore from Australia to China. It then aggregates the quotes to form the Baltic Dry Index.

Basic economic principles of supply and demand explain the significance of the index…

The supply of cargo ships is tight and inelastic. It takes roughly two years to build a new cargo ship. And the high cost of each prohibits docking ships during slow periods. In other words, a change in cargo rates does not change the number of ships in operation. So even the slightest changes in demand for shipping raw materials results in a change in the index.

And because the index tracks the cost of shipping raw materials - the precursors of economic output - instead of intermediate or finished goods, it provides a precise and rare measurement of the volume of global trade at the earliest possible stage.

A sharp move up, means global trade is increasing. Conversely, a sharp move down, means it's decreasing. Since global economic activity ultimately influences the equity markets, sharp moves in the Baltic Dry Index often predict and precede similar moves in the equity markets.

WHATS HAPPENING WITH THE BALTIC DRY INDEX NOW? A TECHNICAL VIEW...

The Baltic Dry Index has conquered the 200 day exponential moving average (dema). The bulls live above the 200 dema and the Bears live below the 200 dema. Moreover a very strong signal of the crossover of a short term moving average ( 50 days ) over the 200 day moving average is taking shape. That would also indicate a short term momentum in Shipping stocks.

FAVOURITE PICKS : GREAT EASTERN SHIPPING & MERCATOR LINES.

Great Eastern Shipping :

The above chart explains it all. Moreover, the stock is available at compelling valuations and I would not be surprised if it targets 400+ in a few months. Some fundamental dope the stock will be made available during market hours tomorrow ( Its pretty late now and I am sleepy :) )

BUY ON EVERY DIP FOR A TARGET OF 360-370 IN THE SHORT TERM.TRADERS CAN KEEP A STOP LOSS BELOW 260 LEVELS. INVESTORS ADD MORE IF COMES TO 260.

Mercator Lines :

THE STOCK HAS SUPER SUPPORTS AROUND 56-58 LEVELS. BUY ON DIPS WITH A STOP LOSS BELOW 55 FOR A TARGET OF 70 IN THE SHORT TERM. MOMENTUM TRADERS BUY ABOVE 62.

Have a great trading day,

Regards,

Rahul T.