Wang’s Happy Trading

The Baltic Dry Index has now fallen significantly for two days in a row, putting us down more than 10% from its high last week. BDI is a streaky index, almost behaving more like an integral of a boolean function than a quantitive measure. BDI rises when the shipping industry perceives that there are more bids for vessels than there are available vessels; as soon as the situation reverses, BDI begins falling. The levels of BDI correspond poorly to constraints in the shipping service itself - the index gladly falls below break-even for operating costs, without obvious support levels showing themselves. It cannot be traded on technicals as if it were a stock.

With shipping stocks lately being supported by speculative expectations rather than earnings reports, a falling BDI can lead to falling stock prices in the short run. I don’t feel we can hope for a major reversal of the sector fall until we have had at least one more earnings season. The market already feels that shipping stocks have risen substantially, though they have only really come back a fractional amount.

The stocks which have had the most sudden run up in prices may be the most vulnerable to erosion while BDI falls. I decided to move to the short side for the time being with FREE, shorting the stock on Friday at $3.28. I am looking for the price to slowly move back to the $2.80-$3.00 region in the next few days. Despite this, I am still bullish on FREE in the longer term.

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