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BDI-Baltic Dry Index- is technically threatening the recovery!
Written by article default Wednesday, 22 September 2010 20:30
Definition and terminology:BDI is an index of shipping and trade that measures the international shipping prices of different dry cargoes such as rice, corn, iron, oil etc...
It is a number that is published every day by the London-based Baltic Exchange and the origin of this name "Baltic Dry Index" traces back to the Virginia and Baltic Coffee House in London in 1744, where a primitive early version of today’s shipping index was developed.
Carefully note that, the index is not restricted to Baltic Sea countries but it tracks the worldwide shipping, while it is also known as the "Dry Bulk Index."
Why is it important to have a look at this index?
Actually, the index can reflect the global supply and demand for the shipped commodities and raw materials all over the world. Consequently, it is acting as an important indicator or rather leading economic indicator that can provide predictions for the future economic activities.
My dear reader let us interpret this within two sentences:
1-When the index is moving upwards, it means that the demand increases and future economic growth could be seen rising.
2-When the index is moving downward, it means that the supply increases and the contraction is underway.
Now, let us have a look at the Index from a pure technical point of view. We can see on the provided weekly chart how BDI failed to maintain levels above the psychological levels of 5000.00 three times, suggesting that the upside move from 663.00 to 4661.00 is seen as a correction for the collapse from levels of 9000.00 to the aforesaid trough, which was recorded in the forth quarter of 2008.
Not only that but it breached the uptrend line, which carried the upside correctional movements from 663.00 to 4661.00 in July 2009 and this breakout caused panic downside move towards 1700.00 levels.
Henceforth, the bullishness from 1700.00 to 2995.00 should be treated as a gathering momentum process and it replaced the retesting actions for the broken trend in order to move downwards more over short and medium term basis.
There are some technical factors that argue us to expect this bearish scenario as follows:
1.
The bearish engulfing candlestick pattern of the previous week.
2.
SMA 50-colored in blue- met the high of this bearish engulfing candle,proving the solidity of the pivotal resistance levels of 2995.00.
3.
RSI 14 came below levels of 50.00 and still has downside targets t be reached.
4.
MACD bars are sloping for the time being towards (0) level.
Technical objectives:
All technical signs are pointing at the key support levels of 1463.00 to be the technical target and a break of which could send the index downwards more towards the psychological support of 1000.00.
Technical note: AROON –trend indicator- is the only one of the above attached technical indicators, which shows some kind of hesitation and we believe that the breakout below 2165.00 can activate a bearish sign, due to the importance of this support.
At the end, does this black technical image pose a real threat to recovery or not?