Baltic Dry Index is often referred as the leading indicator of th economy. The index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various marketsThe BDI is termed a leading economic indicator because it predicts future economic activity. Because it provides "an assessment of the price of moving the major raw materials by sea," according to The Baltic, "… it provides both a rare window into the highly opaque and diffuse shipping market and an accurate barometer of the volume of global trade — devoid of political and other agenda concernsDoes the Stock Market(Say Nifty) follows the Leading Indicator of Economy?Charts presented shows the past 1 year price performance comparision of both BDI and Nifty Index. For the Past one yearBDI and Nifty remains totally uncorrelated most of the time especially during Dec 2008-APR2009 and from July 2009-OCT 2009 . If a trader or an Investor looking for global cues from Baltic Dry Index . Probably he would missed the huge trend and most probably he would be in loss if he looks for cues from the economy
We cant directly compare leading indicators with the index of the same period..
cos leading indicators might be ahead of time But look out the scenario. If an investor started looking for cues from BDI during July – Aug 2009 then probably he could stay away from commodity stocks say for example tata steel, sesagoa as it is constantly cracking right from july 2009 and expecting a decline in commodity prices which could directly impact those commodity stock prices
May be it would create fears among investors because during July-Aug market looks overbought and the PE ratio is above 20. Also Baltic dry index had crashed more than 50% from its high just leave the impression that market would crack any point of the time…..
But what happened is exactly the opposite… Commodity Stocks
rallied,,,,, Gold rallied…. Commodities rallied…. and more
over index rallied…..
Utter confusion remains in relating these term with Index or StocksIf you are a Nifty trader or an Investor then stop looking cues from BDI.Stop Reading External Factors and Start Reading Nifty!Let External Factors be External Factors!