Posted by: rp on the 21st of Oct 2011 at 11:56 am
last week, i took a look at the shipping stocks to see if they were setting up for a pop yet (been getting beat up lately). i noticed that the $BDI (baltic dry index), which used to a favorite leading indicator followed by many, has lately been moving up strongly. however, it seems that the $BDI has been discarded by a lot of traders/analysts in recent yrs and then i remembered that someone here a while back said that the HARPEX is a much better shipping indicator to follow. the $BDI is supposedly the best proxy for the shipment of commodities and other raw materials where as the HARPEX reflects the shipment of a much broader base of commercial goods (wikipedia explains it well).
last night, i pulled the charts of both and compared them to the SPX. i was perplexed by the divergence in the $BDI to commodities, particularily the price of copper vs. the $BDI lately… almost completely inverse to each other this entire year. if anyone who knows much about this has some thoughts, please chime in. my guess is that maybe they retired some of the older ships since the recession started in ’07, thus increasing demand on the remaining ships??
any way, when i compared the HARPEX to the stock market (SPX), i was amazed at the correlation. here are the 5 yr charts of both. what immediately stood out to me though is the recent divergence. first, note that the HARPEX usually peaks before the market (leading indicator), as it did this year before the market topped in may. now look how the HARPEX hasn’t even bounced one bit, but continues to be in free fall as the SPX has grinded higher since the 10/4 low. something must give soon… either HARPEX up or market down.
keep in mind that this post is based on fundamental analysis and fundamentals can take time to play out. if the market manages to move higher from here, i would continue to monitor the HARPEX to make sure that it turns up soon, as the currently divergences, just like copper, are a HUGE red flag that should not be ignored. again, comments/thoughts welcomed.
note- the HARPEX/SPX charts below are 5 yr. the $BDI is only a 3 yr.
