Reuters Market Technical Analysis

As you can see when you look at the 90 day correlation between the Baltic Index and the MSCI Global stock market index it is not unusual for it to negative.

The theory is that the Baltic shipping index is a barometer of economic activity and therefore a guide to growth and therefore should be reflected in stock markets which rise when growth does.

As one reader, Pankaj, pointed out the Baltic has fallen sharply recently while stocks have been rising. So does this drop foreshadow a decline in stock markets.

The simple answer is yes, it probably does. As you can see the correlation with the world’s stock markets is negative and has room to move lower but is getting to a level where the downside is limited.

You can see from the lower chart that there are lags between stock market moves and the Baltic with the Baltic tending to lead the markets. This makes perfect sense if you think about it for a moment.

So beware, the background technicals on many of these markets still point to the downside on a longer term basis. This latest dive in the Baltic can only underscore that view.

Thanks Pankaj for highlighting the Baltic’s decline.

Chart 1 – The technical signals are to the upside in the near term at least. That is signaled by the MACD on the chart but at the same time you can see the RMI and RSI are getting towards overbought and that indicates a pullback.

Don’t forget this is a weekly chart so much longer term than the daily but it is interesting that the dollar trade weighted is getting overbought. That indicated we will see the dollar move higher in the near term, one a weekly basis, but pullback later on.

Chart 2 – As you can see we have reached a critical level at 81.3 and from a technical perspective expect some hesitation here at the very least.

The Show Stochastic is crossing above overbought so expect some pullback and that fits well with the overhead resistance line at 81.3.

So with the Chart 1 and Chart 2 factors in place expect the dollar to retrace on a trade weighted basis for a while but it does look like the much longer term uptrend, in place since the middle of last year, is in place.