November 16, 2016
By Mish Schneider
Title adapted from Wooden Ships Crosby Stills & Nash
In case you have not heard about this, the shipping stock DryShips, Inc. (DRYS) has risen by 2,840% in the last several days.
DryShips is part of the Baltic Dry Index (BDI). The index measures charter rates for different kinds of dry bulk shipping sizes. Those dry bulk ship carriers haul raw materials such as coal and iron ore overseas.
Why is this surge relevant? Keeping in line with last night’s Daily where I have more questions than answers about the next administration’s economic policies, BDI’s crazy move directly relates to current perception. And I do mean perception since it has everything to do with perception and at this point, little to do with reality.
Can we be certain of a reality that has yet to take place? I checked with a few philosophers.
The pat answer is that the only two things we can be certain of are “death and taxes.” I gather the irony must resonate with others besides me when I think-death, yes. But taxes? Maybe not so much given our President-Elect’s elusive tax returns.
But I digress. Philosophers generally agree that any certainty we think we have is based on human optimism. However, we can never be truly certain of any outcome.
How does the abundance of optimism yet lack of certainty help us trade the current market?
The prevailing theme for the last week centers around speculation on a President Trump spending billions on infrastructure in the U.S. If so, that will lead to inflation and fiscal stimulus.
Interestingly, dry bulk shipping has traditionally been driven more by what goes on in China than in the U.S. Furthermore, Trump has proclaimed himself a protectionist who could diminish global trade.
Confused? The Commodity Research Bureau (CRB) encompasses 19 different commodities. 39% is allocated to energy, 41% to agriculture, 7% to precious metals and 13% to industrial metals.
One might gather that if the Baltic Dry Index is screaming, then the CRB Index should be as well. After all, if these ships are to carry raw materials, then one could assume that demand for these raw materials has increased proportionally. It has not.
The Commodity Price Index number has risen in 2016 from its nadir to current levels. For perspective, the peak price was made in July 2008 at 219.74. The lowest level happened in January 2016 at 83.05. At the end of October, the price traded at 108.00.
For a daily chart look, I went to $DUBS or the DJ-UBS Commodity Index. Since the election, the price of that index has fallen.
Remember SMH (scratching my head)? Indeed, until there is some reconciliation between perception and reality I will continue to SMH.
At the very least, I would like to see commodity prices respond with even a modicum of the optimism we are seeing in stocks pertaining to infrastructure and dry ships. To date, only the Transportation ETF, Copper and Steel have reinforced (pun intended) the perceived Trump administration’s economic impact.
Unless pink flamingos count.
S&P 500 (SPY) 218 still the pivotal point
Russell 2000 (IWM) 128.30 pivotal. Consolidating near the highs
Dow (DIA) 187.40 big support. Inside day.
Nasdaq (QQQ) 117.25 pivotal resistance and the 50 DMA. 115.75 closest support.
KRE (Regional Banks) 50 key support held today with an inside day
SMH (Semiconductors) Cleared 69 the Pivotal resistance making it now pivotal support
IYT (Transportation) The needed rest. 155 key support
IBB (Biotechnology) 280 support 290 pivotal and 300 big time resistance
XRT (Retail) 44.25-44.40 pivotal area. 46.00 substantial resistance
IYR (Real Estate) Unless it breaks 72.11 still working a reversal pattern
GLD (Gold Trust) Looks like it is bear flagging
GDX (Gold Miners) Inside day Under 20.99 probably trouble
URA (Uranium) Subscribers: Eh.
USO (US Oil Fund) Resistance at 10.60-10.80. A weekly close over 10.50 promising
TLT (iShares 20+ Year Treasuries) 123 now pivotal with 120.15 point to hold
UUP (Dollar Bull) 25.80 pivotal
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