THREE IMPORTANT CHARTS
Aksel Kibar
6 February 2009
BALTIC DRY INDEX
Created in MetaStock from Equis International
The Baltic Dry Index (BDI) is a number issued daily by the London based Baltic Exchange. The index provides "an assessment of the price of moving the major raw materials by sea. Taking in 26 shipping routes measured on a timecharter and voyage basis; the index covers Handymax, Panamax and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain." The index measures the demand for shipping capacity versus the supply of dry bulk carriers. Dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel and food. As a result the index is seen as an efficient economic indicator of future economic growth and production. On 20 May 2008 the index reached its record high level since its introduction in 1985, reaching 11,793 points.
The chart above is the historical price of the Baltic Dry Index between 1985 and 2009. The index moved between 780 and 2,350 levels between 1988 and 2003. In 2003 the index broke above the 2,350 resistance and reached 6,200. After a pull back to 2,350 in 2005-2006 period the Baltic Dry Index reached 11,793 levels in 2008. Between June 2008 and December 2008 the index collapsed to 700 levels in 6 months. After the sharp sell-off, the index reached an important support level at 780 levels. If we analyze the historical chart of the Baltic Dry, we find an interesting cyclical pattern at every base formation in the last decade. In August 1998, the index reached 780 levels. After a rebound, the second test of the lows was in January 1999, with 5 months difference. In December 2001, the index again reached 780 levels. After a rebound, the second low was in July 2002, with 7 months difference. In August 2005, the index reached 2,350 levels. After a rebound the second test of the lows was in January 2006, with 5 months difference. In December 2008, the Baltic Dry index reached 780 levels and rebounded from the exteme lows. If the cyclical pattern is still intact, we can expect this consolidation to last for 7 months and to form another low (higher or lower) in July 2009, before the Baltic Dry Index reaches higher levels.
SSE COMPOSITE INDEX (CHINA)
Created in MetaStock from Equis International
The chart above is the SSE Composite Index between 2007 and 2009. The index reached its historical high level at 6,124 in October 2007. The first sell signal was generated in January 2008 when the SSEC Index broke down its 2007 lows at 4,800. The downtrend continued in a clear parallel trend channel. The SSE Composite Index reached 1,720 levels in October 2008, only a year after reaching its historical high levels of 6,124. The index rebounded from the low levels and moved out of the parallel trend channel. In the last three months the SSEC index consolidated in a range between 2,110 and 1,830. This week SSE Composite index broke above the important intermediate term resistance at 2,110. 20 & 50 period moving averages generated a dual moving average crossover signal. The technical outlook for the SSEC Index is positive for the short/intermediate term.
5 YEAR U.S. TREASURY YIELDS
Created in MetaStock from Equis International
December 1 (Bloomberg) - Federal Reserve Chairman Ben S. Bernanke said he has "obviously limited" room to lower interest rates further and may use less conventional policies, such as buying Treasury securities, to revive the economy.
January 13 (Bloomberg) - Fed Chairman Ben S. Bernanke reiterated that he is considering buying long-term Treasuries as a way to bring down borrowing rates and unfreeze private credit markets as U.S. Economic data and government reports continue to show the recession is deepening.
In mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is a transaction. Market participants consist of all the buyers and sellers of a good who influences its price. This influence is a major study of economics and has given rise to several theories and models concerning the basic market forces of supply and demand. There are two roles in markets, buyers and sellers. A market that runs under laissez-faire policies is a free market. It is "free" in the sense that the government makes no attempt to intervene through taxes, subsidies, minimum wages, price ceilings etc. (www.wikipedia.com)
The chart above analyzes the 5 year U.S. Treasury Yields in the last two years period. The yields were at 5.00 levels in June 2007. In December 2008, the 5 year treasury yields reached 1.3 levels. The bond yield market is a free market. In December, U.S. Treasury announced that they will be buyers of long term treasury securities. However, since December 2008, we have seen 5 year Treasury yields moving from 1.3 levels to 1.8 levels. This shows that, during the same time period "sellers" were more powerful to push the bond prices lower and the yields higher. Last week the 5 year treasury yields broke above the 1.80 resistance and closed at 1.87. The next target could be 2.3 levels.
Aksel Kibar
Assistant Vice President/Portfolio Management
Abu Dhabi Investment Company
www.adic.ae
Disclaimer: Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. Any and all ideas, opinions, forecasts, market analysis or market data, expressed or implied herein, are for informational purposes only and should not be construed as trading recommendations to invest, trade, buy or sell securities and or speculate in any specific futures contract, option or any other market. Any investments, trades, and or speculations made in light of the ideas, opinions, and or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The market data contained herein is believed to be reliable, but has not been independently verified. Accordingly, such data cannot be guaranteed as to reliability, accuracy, or completeness, and as such is subject to change without notice. In no event will ADIC or any of its employees be liable for any information contained herein. Data Source: Reuters, Investopedia.
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