BDI broke below the psychological 5000 mark

The Baltic Exchange Dry Index ('BDI') provides "an assessment of the price of moving the major raw materials by sea," as the Baltic Exchange puts it (go here). As such, it provides an accurate barometer of the volume of global trade as well as a good leading indicator for economic growth and production.

So, one should be quite worried when the BDI takes a big fall. From the chart below, we can see that the BDI has been sliding since making a high of 11750 in May this year. The BDI lost 133 points to close at 4893 yesterday. This means that the strong psychological support of 5000 mark has been violated. We can expect further weakness ahead.


Chart 1: Baltic Drybulk Rates' daily chart as at September 10, 2008 (courtesy of Investment.tools.com)

The weakness in BDI should, at the very least, mean poorer results for shipping companies, unless they have entered into long-term charters. Looking at Maybulk's weekly chart below, we can see that the stock is now in a downtrend. Its immediate support is at RM3.00 & thereafter at RM2.50. Avoid Maybulk for now.


Chart 2: Maybulk's weekly chart as at September 11, 2008 (source: Quickcharts)