BDI, WTIC, CRB & TNX point to softening in real economy

A look at shipping rates, commodity prices and interest rates indicates that global economy may be softening. Shipping rates as reflected by the Baltic Drybulk Index ('BDI') has retreated back to its tentative uptrend line (see Chart 1).


Chart 1: Baltic Drybulk Rates' daily chart as at September 1, 2009 (courtesy of Investment.tools.com)

A slowing economy will see a drop in crude oil consumption, leading to a drop in crude oil prices. From Chart 2, we can see that the uptrend in WTIC is weakening with the recent high of USD75 ('C') only marginally higher than the preceding high of USD74.50 ('B'). If the current correction lead to a low that is lower than the recent low of USD59 ('Y'), then the uptrend in WTIC will be in doubt.


Chart 2: WTIC's daily chart as at 1/9/2009 (Source: Stockcharts.com)

Like WTIC, CRB- an index for the broader commodity markets- is also showing signs of weakening. Its recent high ('C') is only marginally higher than the preceding high ('B'). See Chart 3 below.


Chart 3: CRB's daily chart as at 1/9/2009 (Source: Stockcharts.com)

With ample liquidity in the market & economy, high inflation is something that central bankers & bond traders have to look out for. The recent weakness in the 10-year Treasury Notes ('TNX') indicates that this fear of high inflation may be receding. From Chart 4, we can see that TNX has broken below its uptrend line, be it S1S1 or SS. I have presented the 3 years' weekly chart of DJIA & TNX (overlaid with 10-week, 20-week & 50-week SMA) as Chart 5. We can see that in the last 2 occasions when the 10-week SMA cut below the 20-week & 50-week SMA ('A' & 'B'), the DJIA followed with correction. Presently, the 10-week SMA is hooking downward & looks set to cut below the 20-week SMA ('C'). Could this lead to another correction in DJIA?


Chart 4: TNX's daily chart as at 1/9/2009 (Source: Stockcharts.com)


Chart 5: DJIA & TNX's weekly chart as at 1/9/2009 (Source: Stockcharts.com)

Based on the above, we have to be more cautious in our investment stance.