How to Form a Long-Term Trading Outlook (Part 5)

11/21/2008 12:01 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

Other leading economic indicators—which serve as the foundation of important political and economic decisions—are often massaged to serve narrow interests, and subjected to adjustments or revisions. Payroll or employment numbers are often estimates; consumer confidence appears to measure nothing more than sentiment, often with no link to actual consumer behavior; Gross national product figures are consistently revised, etc. Unlike stock and bond markets, the BDI "is totally devoid of speculative content," says Howard Simons, an economist and columnist at TheStreet.com. "People don't book freighters unless they have cargo to move." (BDI description and content provided by Wikipedia)

Here’s a fascinating chart of the BDI over the past year with the S&P 500 cash index laid over top of it so you can see the direct correlation between the demand for freighters and the prices of stocks in the United States:

chart

This chart is courtesy of another fascinating website, www.investmenttools.com, and besides this chart, you can find the BDI plotted against the price of gold, oil, or soybeans, among other things. I simply do my own hand charting of the BDI, directly from the Baltic Web site, but if you want to keep an eye on it for a glimpse of future economic activity, investmenttools.com is a nice site with some interesting charts updated on a regular basis.

Even though I mainly make my decisions on technical analysis, I do keep track of a few independent statistics or indicators that I chart myself, and I use them to give me a feeling for whether the economy is expanding or contracting, whether money supply is growing at a reasonable rate, contracting, or growing out of control. I use a handful of these statistics to “frame” the long-term fundamental view I have running somewhere in the back of my head. I would never take a trade based on a change in either M3 or the BDI, but both of them help me know the direction the long-term winds are blowing.

I wish you all good trading!

Best,

Timothy Morge

timmorge@gmail.com
www.medianline.com
www.marketgeometry.com

Related Articles on STRATEGIES