A year ago, the Baltic Dry Index was hovering around 700. Although commodities prices have tumbled this year, the Baltic Dry Index has soared, more than tripling to Monday’s close just under 2,300.
Since the index measures daily charter rates to ship a variety of commodities across the globe, not equity prices, the default Baltic Dry Index exchange traded fund is the Guggenheim Shipping ETF (NYSEArca: SEA), though it should be noted SEA tracks the Dow Jones Global Shipping Index. That index is a collection of dividend-paying global shipping firms, not all of which are focused explicitly on the transport of dry bulk commodities. [Clear Seas Ahead for Shipping ETF]
Still, SEA’s association with the Baltic Dry Index has been enough to drive the ETF higher by 20% and there are fundamental and technical points that indicate SEA could be poised to deliver more upside for investors in the new year. On the fundamental side, and this anecdotal evidence, some shipping firms have recently taken delivery of new ships. Logic dictates that is something a group of companies that were whacked with financial foes during the global financial crisis would not unless they were feeling optimistic in their near- to medium-term outlooks. [Shipping ETF Riding a Wave]
“SEA is currently consolidating in a tight range near its 52-week high, after a 20% rally off the 40-week moving average in late June. The ETF is also forming a bull flag type pattern on the weekly chart,” notes Deron Wagner of Morpheus Trading Group.
Wagner goes on to note “There is also nice time symmetry in the chart pattern. The rally was 12 weeks long and the consolidation is also 12 weeks (so far). Further, the consolidation has retraced only 33% of the prior advance. This is a bullish sign because a bull flag pattern should not retrace much more than 33% of the prior advance, with 38% being the max.”