Tucker Report » Baltic Dry Index

Markets still in counter-trend rally, Baltic Dry Index moving higher

Doug Tucker — Mon, 18 May 2009 05:55:19 +0000

The Baltic Dry Index has seen a huge drop in price over the last year or so. There has been a good percentage bounce lately, but the world cost of shipping raw goods is still a small fraction of the price a year ago. Downside momentum did subside as can be seen by the numerous sideways bars on the weekly chart to the left. A rally started from extremely oversold levels. That rally corrected, or tested, back down. That test held, and prices as of this last week have taken out the swing point, as can be seen at the horizontal cyan line. Note that during the re-test back down the stochastic indicator in the sub-graph continued to rise. The pattern presented here, that is of a rebound from oversold levels, a rally, a successful test back down, and subsequent break of the swing point, presents a bullish picture, at least on this weekly chart. On the other hand, the extend of the previous decline would suggest that the longer picture is that of a serious bear market. Counter-trend rallies obviously do occur and they are often interpreted as new bull markets. I think it is premature to think of this as a new bull market. There would be much work to be done to turn this around. So far, to my way of thinking, the rebound in the cost of shipping further supports more upside to stock indexes over the short to intermediate term. But I still view this in the context of a larger degree bear market. The bear likes to get all on board the bandwagon before the next leg down. Keep in mind that this index would have to double from here to even approach the first fibonacci retracement level of the entire drop, that is around 38%, which would still indicate a weak rebound within the overall bear market.

The weekly S&P etf is to the right. I drew a similar cyan horizontal line, with a similar set-up on this broad index. The previous pivot has not yet been taken out. It was approached this last week, but so far this week there has been some pullback. Momentum continues higher after the bullish divergence. I am using a longer term stochastic on this chart. It is the Stochastic Momentum Index, as opposed to the more sensitive double stochastic that I usually have on the charts. I’ve been trying to stand back a bit to get a little longer perspective. Daily signals have been somewhat more bearish, but there still seems to be a bullish tailwind over the intermediate term. It doesn’t seem that sentiment is quite bullish enough for the next leg down to begin. As with the comment on the BDI, the bandwagon needs to be more fully loaded.

It is difficult for the way I view the markets to take longer term positions when the three time frames are so out of synch. A study of stock market history will show many significant rallies within the context of major bear markets. These rallies are tempting but insideous. A well defined and constructed uptrend and suddenly fall apart and trap the believers in the new bull. There are many similarities with the markets and the political climate of today and during the great depression. Back then we had a government that prolonged the downturn with massive government programs. It appears we are about the repeat that failed experience. Politicians refuse to learn from history. There is rarely a time in trading that everything lines up perfectly. There are always many pieces to the puzzle of future market direction. The Baltic Dry Index, while imperfect for short term timing, is still an important piece of the puzzle, as is the longer term charts of the broad indexes. And it is essential to keep the political climate in mind, which has been my main worry since the election.

Also, another excellent article from my new favorite blog The Black Sphere, “Obama’s Fuzzy Job Math” post last Friday. Check it out, and bookmark Kevin’s website.

Urgent Porkulus bill to be signed as soon as president returns from vacation, and some Baltic Dry thoughts

Doug Tucker — Tue, 17 Feb 2009 02:18:18 +0000

Comrades Pelosi and Reid were in quite a hurry to pass the porkulus bill through the house and senate. Congress voted on a 48-hour public comment period prior to action. Not only did congress go back on that promise, they instead released the bill in such an untimely way that not even an Evelyn Wood speed reader in congress could possibly read the bill prior to the vote. This is no real surprise. And I’m not just blaming Democrats, although they seem to have raised such tactics to an art form. There are examples of politicians throughout history that have created a crisis with an urgent need to pass a plan to fix the problem before anyone, either those voting or the general public, has had time to think. The president is using scare tactics to frighten the public. He instills fear by making comparisons to the great depression. If he would just look at the facts and numbers it would be far more accurate to draw a comparison to Comrade Carter’s years in office, but that wouldn’t be enough to get his agenda done. So this crisis had to be dealt with urgenty, yet the president is on vacation and doesn’t plan to sign the bill until Tuesday. It is fine to take the long weekend off. But since the bill wasn’t to be signed for a few days anyway, why not let the people read it as promised, or at least let those voting on it read it? I’m sure we all know the answer to that.

I’m sure everyone has seen the Newsweek cover by now. This graphic was lifted right off the Newsweek website. My Marxist university economics professors were right, well not right, I should say correct. One thing I recall from econ 101 was something called Pareto’s Law. My college professors referred to it as Pareto’s theory instead of law, and they thought it was hogwash, but it has stood the test of time in all societies. The Pareto law or theory states that the larger incomes are received by relatively few people, and as the incomes decrease, the number receiving the lower incomes increases in a very smooth curve. This seems obvious, of course. There are those who would like to change this and have more income equality. Unfortnately, in my opinion, many of those who would like to change this are now in greater power in Washington. One thing they should think about is that nations with the largest wealthy classes also have the highest standard of living. To lower the incomes for those at the top seems to lower the standard of living to those all the way down to the point where totally equalized earnings would equalize at a very low level. There were relatively few rich in the Soviet Union. There was still wealth and power in a few hands in the government. Cuba is probably an even better illustration of this, although there are some who blame the US on their economic situation. And how many billions does Castro have? In the Cuban example most of the wealth is concentrated in a very small circle, with the rest of the population living in misery. But they do have free education and health care. I keep hearing that on NPR.
Here is another chart of the weekly Baltic Dry index. The last chart a few weeks ago had the first signs of what looked like a dead cat bounce off of a very oversold level. The index has continued to move higher, actually quite a bit higher on a percentage basis. The momentum indicator in the lower sub-graph shows the beginning of an upmove from obviously very oversold levels. The indicator is the stochastic momentum indicator, which is much smoother than a standard stochastic. Also, there is a ten period simple moving average in yellow over the prices, which also has emerged into possibly an uptrend. I say possibly because there isn’t yet any sign of an uptrend as defined by price action. So far this still looks like an oversold bounce, but these bounces can turn into trends. However, normal backing and filling to create some sort of basing pattern would be better than a V shaped bottom with a move right back up. Also, I have a hunch that this index has been receiving far too much media attention lately to still be considered a leading indicator. It is probably at best now a coincident indicator. It is still interesting to observe the cost of shipping raw goods as a gauge of world economic activity. This index is suggesting that the near collapse of global activity has been greatly exaggerated, and maybe some normalization will occur. One side note: I still plot this data by hand, as it is difficult to get charts from quote vendors and charting packages, although there are a few more resources for the data as it has become more popular. In the past many people used the stock DryShips as a proxy for the index. Dryships folllowed the down move of the index nicely, but seems to have decoupled lately as the company has had some banking issues that has put pressure on the stock price.

Stock indexes are still trending sideways, but still with fairly high volatility. The antics in Washington seem to be the main problem, as bad earnings are probably already factored into prices. Gold is maintaining a nice uptrend, although it looks vulnerable, in my opinion, to one of its famous shake outs.

Stock, Oil, Gold all down, Baltic Dry Index still down

Doug Tucker — Tue, 13 Jan 2009 02:50:22 +0000

Stocks were lower again today. Volume was still muted, and the advance/decline ratio still appears somewhat constructive. It still appears that the stock indexes are at least trying to trend sideways instead of down, at least on the daily perspective. The price action today is testing the pivot low area around 12/24 or so. This whole sideways movement is on light volume, so I’d expect a breakout on way or the other, with volume returning to the market. Volatility has come down quite a bit, but is still quite high. If I had to bet, I’d bet on an upside breakout, although that opinion is starting to become the consensus, so will probably be wrong. Since I don’t have to bet, I’ll just wait and watch.

For clues I often turn to the Baltic Dry Index. For new readers who are not familiar with this index I have an article here: Baltic Dry Index article. The Baltic Dry Index has recently retraced the entire spectacular bull market it made over the last couple of years. There was a huge momentum divergence at that double top on the right side of the chart. Momentum is now oversold, obviously, however there seems to be little interest in a bounce. Many traders will use these large retracements for bargain hunting. I find that most often when markets retrace entire moves, there is little interest in starting the bull market over again. Most ofter there will be long periods of disinterest and boredom before a new bull market can begin. Since this index isn’t really a tradable index, it does suggest there could be a long period of low economic activity globally. This would be especially bearish for commodities in general. Some bounce in this index is probably overdue, and if it should occur there would likely be much excitement that bad times are behind us. But I think any upmove at this time would be nothing more than a dead cat bounce.

As the Baltic Dry Index has retraced all of its bull market, as have many other commodities, one would think gold would have also retraced its entire move and should be trading under $300. But gold, although well off the highs of last year, is still holding up fairly well. The irresponsible fed and treasury can be given credit for that. There seems to be little possibility of any good outcome for the dollar in the long run. It may be that other currencies will be diluted even further than the dollar, which may prop up the dollar in relative terms, but in absolute terms, such as against gold, currencies could go the way of the d-mark in the 20′s. I’ll keep a wheelbarrow in the garage just in case I need to buy a loaf of bread. The above chart of the gold etf shows the nice down-channel, with nice even swings in the short-term momentum index. The channel is a drawn with 1.5 standard deviations above and below a linear regression line, for those interested in such things.

I know my updating of this blog has been a bit sporadic. I’ve had some personal issues to deal with and it has been difficult to find time to update. I’ll do my best to be more regular, or at least more frequent.

Baltic Dry Index at multi-year lows

Doug Tucker — Tue, 11 Nov 2008 03:41:32 +0000

There really isn’t much to report regarding the stock indexes. On Friday there was a late day rally, but still leaving an inside bar. There was some follow-through early in the session today, but the rally faded on declining volume. Trend and momentum are still pointing south. However, there may be hope for the bulls. If the lows of the last three sessions can hold somewhere in this region, there is a potential inverse head-and-shoulders forming. In combination with the declining trend in volume and declining momentum in the moving averages, this could be setting up for a powerful reversal. This scenario may not play out, and it is very premature to assume it will at this point, but it is a possibility. I’ll wait a day or so to post a chart. I’m afraid if I post it now I’ll jinx it and the indexes will immediately take out the October lows.

The above chart if of the Baltic Dry Shipping Index. Earlier in the year I became very bearish on anything commodity related. I am a long time gold bug, so it was difficult to go against my nature, but there were many clues that the great commodity bubble was in the process of bursting. First, the China bubble burst. The talking heads and newsletters were suggesting that the China boom was just beginning, and that China would continue to drive up prices of nearly every commodity on the planet. Sentiment was overwhelmingly one sided toward the bull case, as it was with grains, oil, gold, at the same time as being overly bearish on the US Dollar. Regarding the dollar, some of the most respected investors, traders, and analysts said there was little chance of a recovery as far out as they could see. I knew bearish sentiment could not be sustained, yet there was little technical evidence of a change in direction. China was starting to unravel, however oil and other commodities kept climbing. The dollar continued to fall more than 10% when I started becomming bullish, further fueling the commodity bubble. I still didn’t have any technical evidence of a turn-around.

One indicator that can sum up much of this activity is the Baltic Dry Index, and it can sometimes give leading clues. It is largly influenced by shipping to China, and it is also influenced inversely by the US Dollar, and it is obviously sensitive to raw commodity prices. You can see on the chart that the cost of shipping has risen by a huge percentage over the past few years, and is up over a thousand percent going back a little over six years. You can see after that huge double top and prices have erased the entire gain on this chart. The double top was accompanied by a huge divergence between the Baltic Dry and some of the Chinese stock indexes. At the peak, or second push to a high in April of this year, many said this new high was a precursor to ever higher commodity prices. Even the CEO of DryShiPs came on CNBC almost to the day of the peak, and said this was just the beginning of the next big wave up. Ken Heebner of the CGM Focus fund had been on CNBC many times saying commodities were the best asset class to be in, and most of his positions were in commodity related securities. He is now mostly out, but not sure of his timing in relation to those comments on CNBC. Jim Rogers said the dollar was in a never ending spiral down. Mr. Rogers may still be right in the long run, but the dollar has had one huge rally after a long sideways basing period. He does still have books to sell on hot commodities. The list is long of those who were bullish far past the top. It is difficult to go against the opinion of such well respected people, but one must use sentiment and technical indicators to avoid getting crushed when nearly all traders are on one side of the boat. It can never last. The up and down cycles will continue as long as there are markets to trade.

Stocks continue downtrend, Baltic Dry Indexes collapses

Doug Tucker — Fri, 03 Oct 2008 04:54:07 +0000

Stock indexes and most commodity market continued in their downtrends today. Oil has retraced most of the earlier uptrend for the year. The grains have been crushed. The Euro has lost all ground gained in the last 12 months. The high flying ag stocks are in freefall, as are most metal and other basic material stocks. I had been warning of the coming collapse in the commodity sector for many months now. The collapse is now very clear, but at the tops of these moves many famous analysts and traders were advising everyone to load up. I have to think they were distributing their position while encouraging the public to keep buying. Things never change. The downtrends across many of these markets are becoming well defined and will most likely last for some time, with many false rallies pulling in traders who still believe. There will be new uptrends someday, but no evidence yet. Although sentiment is starting to get a little too bearish in the very short term.
I’m staying away from stock indexes for now. The indexes are trading in a very strange way at the moment. There’s a sense of thinness in the market depth, or volume at various prices levels on the bid and the ask. The overall volume may be high, and the ticks are coming in fast, but something just doesn’t feel right taking positions here, at least in the stock indexes. The swings are just to violent for my style of trading. I’m sure there are many traders that are able to handle this type of market, or at least they will tell you so after the fact. Sentiment is getting very negative again, and there is risk of sharp retracements, as has been the case recently. I have no business trying to pick a bottom, and I don’t want to chase the short side with sentiment as negative as it is. So I wait, and hopefully can scalp a few daytrades once the intra-day swings smooth out and market depth improves. But there are many potential bargains starting to become available, as everything is getting hammered in this downtrend. It is interest how Berkshire Hathaway as been moving up recently, as I pointed out in a previous post. They are able to pick up some bargains with their huge pile of cash. There were times when stock were flying and BRK was stuck in the mud. Now stocks are tanking and BRK is in a nice uptrend.
Instead of showing the usual stock index chart, I’ve posted the Baltic Dry Shipping Index. This is a weekly chart with the usual double stochastic in the sub-graph. You can see this index has been in a straight downtrend since the big double top, and is now trading at levels not seen for over two years. I recall at each of the two peaks in that double top the ceo of Dryships was on CNBC giving reasons why the cost of shipping dry goods was going to keep climbing, and there’d be no downside to shipping prices with the shortage of ships and the increase in demand from China, etc. etc. However, the China bubble has long since popped, and their reported growing needs for dry goods had been greatly exaggerated. This index is not showing any signs of global demand for commodities. The cycle in the sub-graph had produces very clear and even cycles, but now the indicator is just staying in the oversold zone, which is very negative. There is a clear implication of a slowing global economy. Some will argue that part of this drop can be attributed to the drop in oil prices and the rise in the US Dollar, which is true, but only a small part. Changes in this index can sometimes be a leading indicator of world wide economic activity. If this index keeps contracting it will be hard to imagine a sustain bull market in global stocks.

Stocks mixed to higher, Commodities down again

Doug Tucker — Sat, 16 Aug 2008 23:32:47 +0000

It was generally a slightly higher day on Friday in the stock indexes, on light volume on the option expiration day. I had suggested that the indexes might come back into the area of the moving averages, and the S&P etf did just that, with the bar on Thursday just touching the blue moving average line and then reversing up, and extending a bit further on Friday. The Nasdaq has been stronger and did not pull back very far. The QQQQ was only able to pull back to the faster moving average line at the low on Wednesday. With trends and momentum up I would assume the path of least resistance is higher for now, but keeping in mind volume is light. Commodities are getting quite oversold on a very short-term basis and any rebound could cause and abrupt reversal to the downside in the stock indexes. I say abrupt because of the light summertime volume.

For a long time I’ve been viewing the downtrend in the dollar as overdone and a far too one-sided trade. You can see the extent of the move over the last couple of years on the weekly chart of the US Dollar index above. The last couple of week have finally shown some good upside after a long period of consolidation. Most analysts were viewing the consolidation as a pause before the next leg down. It was difficult being bullish when some of the biggest traders, including a few billionaires, were still quite bearish on the dollar. I think one can trade better ignoring advice, even if it is coming from billionaires. The charts were indicating that the downmove was coming to an end, and that was pointed out numerous times on this blog. The trend indicators have turned up for the first time in a couple of years. Many of the billionaires, include Bill Gross who is well respected, view this upmove as temporary with the downtrend still intact. He may be right, but staying short the dollar through this rebound would have been painful. I guess it depends on the time frame one is trading. This move up has been quick, and with a wide range, and price is now at a point of resistance near the Dec 07 highs. But as long as the trend remains up, the enevitable pullbacks could represent opportunities for long trades. I would be careful chasing here.

I haven’t had a chart of the Baltic Dry Index for some time, so here it is, updated through Friday. This indexes, which suggests prospects of growth, or not, in China and other parts of the world, has certainly been moving with wide swings over the past couple of years. The new high last May looked like a breakout on the chart, but there was a major divergence between this index and some of the dry shipping stocks, such as DRYS, which failed to make a new high. The index has since retraced back to the lower end of the range. The red dots are a standard Wilder parabolic stop, with the parameters slowed somewhat. Perhaps the cost of shipping is lower because of the drop in crude and the rise in the dollar, rather than lack of demand. But I would think there would be some lowering in demand since commodity prices in general have been on a decline.
My last post had a link to a video with some trading rules. Here is another link to a you tube video, but this time seems to be aimed more at short-term traders. It’s a good one. Check it out. Here’s the link: Before He Trades – a Carrie Underwood Parody

Turnaround Tuesday

Doug Tucker — Wed, 02 Jul 2008 00:00:12 +0000

Stocks made a nice recovery today. I had thought the market was looking a bit overdone on the downside. Sentiment was getting very negative. The stock indexes opened very negative, but then rallied after news was released, only to fall apart once again. Later in the day indexes turned back up and finished mostly on the plus side. GM helped after posting number not as bad as expected. Also, oil eased off a bit from the ever increasing bubble. The chart above shows a horizontal line on prices. You can see the bar from today probing the support at the green line, and so far rejecting the lower prices and closing at the high of the day. This is the third time that price area has rejected prices. It appears shorts were aware of this level and probably covered once it was clear prices were uncomfortable at the lower prices. The intra-day action looked like short covering. Volume picked up today. I would still like to see a rally into the moving averages (not shown on above chart – refer to previous posts) to see what happens to volume and momentum. If prices find resistance with an overbought momentum reading, another leg down would be likely. The Nasdaq found support under the 50% correction level from the March low to the May/June double top. The Nasdaq futures probed the fib 61.8% retracement level from that same uptrend, and rejected that level and put in a bullish hammer candle. The day session Nasdaq put in a bullish outside day, or engulfing candle. It will be interesting to see if any momentum can build on the upside to at least put prices back up into the area of the moving averages. Counter trends are difficult. The selling can resume quickly. The biggest negative can be seen in the lower sub-graph, which is the advance/decline ratio. It is still declining. This leads me to believe, at least the way things look now, that any rally will be short lived. That could change if the oil bubble bursts.

I haven’t shown the Baltic Dry Index for some time and thought I should put up a chart. The blue line is the index and the red dots are a parabolic stop, which seems to track the index nicely. The index put a new high in May. Most of the dry shipping stocks did not make a new high from the October peak. The index looks to be heading back down. I would think shipping costs would be going off the chart with the high oil prices. This index is very sensitive to economic activity in China, which is perhaps not as robust as all the hype would suggest, at least short term.

Stock indexes end little changed for day, Commodities higher

Doug Tucker — Sat, 05 Apr 2008 02:28:29 +0000

Stock indexes closed about where they opened today after a disappointing employment report. The bulls can argue that the market could have reacted to the negative news sharply on the downside, and the fact that the indexes were able to at least rally for part of the session and close without a big loss was somewhat of a victory. Bears can argue that there has been little progress after the big up day on Tuesday. You can see on the chart where I put the cyan ellipse that there are three upthrust that failed to attract buying, and each time the market closed at about the same location. Momentum is also getting a bit overbought on the very short term, and a slight divergence is setting in. There is also some major chart resistance at the pivots where I drew the yellow line. The market could easily pull back a bit to gather some strength before attacking that yellow line. It does look like the market wants to work higher, but maybe a little stumble first. It’s just a guess. It could overcome resistance without pulling back, but it would be nice to see momentum pull back first. You can see how the daily bars are wide ranging with many changes of direction from day to day, which makes it a flip of the coin to say what might happen a day or two out. But I’ll repeat that usually this choppy activity is more characteristic of markets trying to come off of bottoms. Not always, but usually. Tops are most often more complacent and with less chop.
I once again show the profile bell curves. The forth day back is just part of the trend day session on Tuesday. I cut off the bottom as the chart would have been too long. The three upthrusts I referred to on the candle chart above is shown on this chart as the price activity above the blue horizontal line. Often these upthrusts, when they occur at the end of a market move, will have a row of single prints to show a selling extreme. The fact that these profiles formed with a lot of volume means that the upthrusts are not the termination of the move. The lack of pushing value higher (the purple vertical lines) would indicate that the market has been fairly balanced between buyers and sellers. Buyers have come in at the lows and sellers have come in at the highs, and there has been much rotation back and forth. The market will come out of balance, and the odds look like the resolution should be to the upside, but a test back down first would not be a surprise and would not invalidate upside case, unless of course the lower test fails and selling is triggered. It is always best to be prepared for both scenarios, as anything can happen. I know it sound like saying the market can go up or it can go down, but that actually is the case. All one can do is weigh the evidence and see which way the odds tilt. Nothing is 100%. Although I’m sure the dollar bears and commodity bulls believe that bet is 100%. (For those unfamiliar with the profile there is a link to the CBOT on my resource tab where you can download an excellent pdf manual, as well as view some video seminars. It is the third link down.)
The chart to the left is the Baltic Dry Index. I haven’t posted this for some time now as there hasn’t been much to say. There was a huge drop just when all the bulls said the uptrend had a long way to go, and since the drop there has been about a 50% correction back up, and now it is going mostly sideways, perhaps with a slightly down tilt. With copper and oil prices bumping along the highs, and the US Dollar still close to all time lows, it is surprising that this index hasn’t advanced further. Perhaps the implication is that there is going to be more of a global slowdown than just a slowdown in the US. If so then there should be a shift to lowering interest rates globally, and with the US rates getting close to zero, the end of the dollar decline should be near. I sound like a broken record on the dollar, but it can’t go down forever. (can it…..?) The masses are short the dollar and believe it is a one way street to zero, and the masses are always proven wrong …… eventually.

Stocks lower as chop continues

Doug Tucker — Fri, 22 Feb 2008 00:37:06 +0000

Stock indexes flipped back over to the downside today. Most indexes are flipping back and forth daily, and winding into a tighter pattern coiling up like a spring. Yesterday I had the S&P etf showing a sideways line and triangle with prices heading into the apex. Today I show the same thing with the Nasdaq etf. You can see overlapping price bars with a tightening, sideways direction. The momentum indicators are confused, with the longer term (black line) overbought, and the shorter term (white line) oversold. It is difficult to make a directional play at this time. Since the existing trend is down it would be logical to think the resolution would be to the downside. I will await a breakout and trade in that direction on the re-tests. Entering on the breakout could be difficult, as odds are high the first breakout could be in the wrong direction and the trader would most likely have bad trade location. Market usually re-test the breakouts, allowing a safer entry point. But they don’t always re-test so there’s always the risk of having the market run without being on board.
The Baltic Dry Index had a little rebound rally, and prices look like they are rolling over a bit. As long as the index stays over the red dots I’ll assume the trend to be up. The dry shipping stocks have rebounded nicely after some spectacular downside. The implications on the chart for many of the commodity bubbles have not been realized yet, although many of the Chinese stocks and indexes have had some good downside action. They seem to be letting air out of the bubbles slowly rather than popping them.
Gold continues up, at least in the pit traded contract. Most of that action was catch up to the after hour trade in the electronic contract. The etf, which trades stock hours closed down a tiny bit after being higher most of the session. This turn-around left a small upthrust bar on the daily charts. This is probably not enough to signal any reversal yet as trend and momentum are still pointing northbound. A failure to hold the Jan 30th high would be a first warning of exhaustion, in my opinion. Crude has had a third move to its overhead resistance level, and the action today brought prices back under those three peaks. It will be interesting to see if prices can go back to the lower end of the large channel that has been forming over the past few months.

Stocks, Gold, Baltic Dry Index all higher

Doug Tucker — Tue, 12 Feb 2008 01:27:22 +0000

Stock indexes were higher today. It was a small rally, but there was evidence that a rally would come in today, as mentioned in the comment of Friday. You can see the green buy dot on the chart of the QQQQ post last Friday, and today the market rallied right up to the declining moving average line. The main trend is still down, and this seems to be the start of a counter-trend rally. I have no idea if there will be follow-through or if this little bounce will abort with the downtrend resuming. The market is trying to swim upstream here, and may run out of momentum at any time and without notice. It is safer to trade in the direction of the trend. There is much overhead resistance as indicated on the chart from Friday, and it is sitting on the first line of resistance now. If that can be overcome it may challenge the pivots overhead, as drawn on the chart on Friday. If those pivots are overcome, then there could be a more serious upside move. But any failure could send this market on the next leg down, which would be the path of least resistance with the trend being down. I wish I could be more definitive, but there are two sides here, and two cases to be made.

There isn’t much new to add to that chart today so instead I’ll post the Baltic Dry Index, which I haven’t posted for a while. You can see on the chart to the right of the BDI that the parabolic stop (red dots) was finally hit after containing prices during the dramatic downtrend recently. It looks like the back was broken of this bull run and bubble. A rally to retrace a portion of the downmove would be normal. While a rally to new highs is always possible, it appear unlikely in my opinion. But anything is possible. I’ll try to keep an open mind as I judge the character of the retracement. If this index has a modest bounce and then a resumption of the downtrend, the obvious implication would be more downside to the Chinese market. Speaking of bubbles, the Wheat market had quite a reversal down day today. It was obvious some air was ready to be let out of this market when CNBC was giving Wheat prices every few minutes and presenting the bullish case for higher prices. Markets tend to experience reversion to the mean whenever they get the most attention and there are no fundamentals to be seen to support the opposite side of the trade.