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One Bright Spot in the Economic Black Hole

By Jeff Clark
Thursday, September 8, 2011

Nobody talks about "green shoots" anymore.
 
That once often-quoted term described the little, green seedlings of optimism sprouting up in the economy. But it has evaporated from public discourse like a light sprinkle of water evaporates on a hot August sidewalk.
 
Of course, it's hard to be optimistic when the whole world is coming unglued.
 
Washington D.C. is in turmoil. Europe is falling apart. The economy is slipping into recession. Stocks are falling. Job growth is non-existent. America, as we know it, is ending. And there aren't any real stars on next season's "Dancing with the Stars."
 
Yet, among all the economic indicators pointing downward, there is one small bright spot... one seedling of hope peeking its head above the dirt and trying to reach skyward.
 
Take a look at this chart of the Baltic Dry Index (or "BDI")...
 
 
The BDI displays the cost of shipping dry goods overseas. It's an excellent indicator of economic demand. After all, the cost of shipping dry goods fluctuates with the demand for those goods. A rising BDI indicates increasing demand. A falling BDI is consistent with a decrease in demand for dry goods.
 
The last time we looked at the BDI, the index was falling, while the stock market was rising. At the time, I suggested maybe the stock market was getting a little ahead of itself.
 
Now, we have the opposite situation.
 
Look at what happened in August. While the stock market was falling – mostly in reaction to a host of poor economic numbers – the Baltic Dry Index surged 30% higher. The BDI is now at its highest level of the year.
 
So amidst all the gloom and doom, demand for dry goods is increasing. This is a good sign for the economy. Yes, it's only one green shoot in a field of withered weeds. But, hey, it's a start.
 
It's also a good sign for the shipping stocks. Shipping companies like Genco (NYSE: GNK), DryShips (NASDAQ: DRYS), and Eagle Bulk Shipping (NASDAQ: EGLE) have had a miserable year. Their shares are down 50% or more since January.
 
But if this bump up in the BDI holds – or if it runs even higher – the shipping stocks may catch a bid and run higher, as well. Aggressive traders should consider buying into this beaten-up sector here.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

"Look out, $2,000 an ounce," Jeff wrote this week. "Here we come." But after gold surges, we could easily see a sharp correction. Take a look at the chart that proves it here: Gold's Next Move.

In The Daily Crux
Market Notes
Natural gas engine maker Westport rockets almost 20% in one day after announcing partnership with Shell.
 
Silver is quietly building a new uptrend... big silver fund SLV sits just below a four-month high.
 
Shale gas uptrend remains strong... Range Resources and Cabot are both up more than 25% over the past three months.
 
European debt fears are killing German stocks... EWG is down 30% in three months.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1173.97 -2.5% +7.7%
Oil (USO) 34.69 +3.3% +5.9%
Gold (GLD) 177.08 -3.2% +44.3%
Silver (SLV) 40.53 -1.3% +109.4%
U.S. Dollar 74.49 +0.4% -9.6%
Euro 1.42 -0.4% +10.8%
Volatility (^VIX) 33.38 -9.8% +40.3%
Gold Stocks (^HUI) 623.81 +0.3% +27.1%
10-Year Yield 2.04 +3.0% -21.8%

World ETFs
Symbol Price
Change
52-Wk
S. Africa (EZA) 68.49 +3.7% +17.4%
S. Korea (EWY) 56.14 +4.0% +14.2%
USA (SPY) 120.29 +2.8% +11.9%
Canada (EWC) 29.54 +2.0% +11.3%
Taiwan (EWT) 13.56 +2.4% +11.0%
Singapore (EWS) 12.95 +2.6% +6.9%
Lat.America (ILF) 46.22 +2.3% +1.0%
Japan (EWJ) 9.57 +1.9% +0.4%
Israel (ISL) 14.45 +1.0% -2.3%
Russia (TRF) 17.91 +1.4% -2.8%
China (FXI) 37.85 +1.8% -4.7%
India (IFN) 27.37 +2.7% -10.0%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service (OIH) 131.99 +4.4% +30.2%
Internet (HHH) 75.97 +1.9% +29.8%
Retail (PMR) 19.89 +3.0% +23.1%
Big Tech (QQQQ) 54.64 +2.5% +20.5%
Consumer Svcs (IYC) 67.40 +2.5% +18.1%
Health Care (IYH) 68.55 +2.5% +16.1%
Basic Mat (IYM) 69.55 +3.1% +14.7%
Big Pharma (PPH) 67.80 +2.0% +14.4%
Media (PBS) 12.83 +3.4% +12.8%
Semis (PSI) 13.10 +3.4% +11.2%
Utilities (XLU) 33.50 +1.1% +11.1%
Real Estate (IYR) 56.62 +3.4% +10.5%
Biotech (PBE) 19.76 +3.5% +10.2%
Industrials (IYJ) 59.29 +3.3% +9.4%
Water (PHO) 16.70 +3.0% +8.6%
Telecom (IYZ) 21.80 +2.0% +8.2%
Transportation (IYT) 81.62 +3.2% +5.0%
Software (PSJ) 22.21 +3.8% +4.7%
Defense (PPA) 17.01 +3.0% +4.4%
Construction (PKB) 11.11 +5.1% +1.8%
Insurance (PIC) 14.15 +5.3% -2.6%
Financials (IYF) 48.30 +4.5% -4.4%
Nanotech (PXN) 7.08 +2.6% -14.1%
Alt. Energy (PBW) 6.96 +3.4% -23.1%

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