The TSX Venture was taking it on the chin Monday, down 1.5% as the Baltic Dry Index declined for the 7th consecutive day.
Baltic Dry collapse will hurt TSX Venture
A prolonged decline in the Baltic Dry could be signalling a break from recent strength in commodities. We have written about this index and its relation to commodities and the TSX Venture for years at Pinnacle.
After touching a high above 700, the index, which measures the cost of moving raw materials around the world, has fallen almost 15%. The recent decline has been fueled by fading Chinese demand for key commodities such as iron ore and other industrial metals.
image source: http://www.zerohedge.com/news/2016-05-09/iron-ore-rebar-crash-bear-marke…
Our last in-depth look at the Baltic Dry Index came on March 20th, in a Weekly Volume titled What’s Behind this TSX Venture Bull?
We wrote, in respect to the Baltic Dry Index, that:
“It accurately forecast the past three major market crashes, including 1987, 2000 and 2008. In 1986, the index hit its first all-time low; in 1999 it hit a 12-year low, and then in 2008 it fell from above 11,000 to roughly 780. After rebounding to nearly 2,500 at the beginning of 2014, the BDI hit a new all-time low of just 290 this February.”
Click here to read the entire report.
At the time, we agreed that the all-time low in the Baltic had in fact triggered a buying opportunity in the TSX Venture and other commodities. On March 20th, we wrote that:
“The Baltic Dry Index climbed to a 5-week high of 396 last week, “as some market players expressed intentions of acquiring tonnage at 30-year low prices…” according to Ship and Bunker.
Seanergy Maritime Holdings is one of those companies…
Stamatis Tsantanis, Seanergy Maritime’s Chairman and CEO, stated:
“We firmly believe that current market conditions represent a unique opportunity to acquire quality tonnage at 30-year historical low prices. For that reason, we intend to pursue acquisition opportunities that we believe can further enhance value for our shareholders.”
source: http://shipandbunker.com/news/world/141909-baltic-dry-index-edges-up-to-…
Take a look at the TSX Venture back in mid-March. It was a handful of weeks into a rally that would prove historic…
TSX Venture – 3 Month Chart
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Now, due to a weakening global demand for commodities, a pullback for the heavily weighted commodity sector could be in the cards.
On Monday morning, ZeroHedge.com reported that, “The Baltic Dry Index now down 7 days in a row, down 14% from its “everything is fine in China” highs from 715 to 616 today…”
Zerohedge does not believe underlying demand for various commodities exist and believe the Baltic will fall lower. Iron ore and steel rebar futures are both down more than 20% from April highs.
This should be of note to investor’s long commodity stocks and ETFs on the TSX and TSX Venture. Historically, the TSX Venture finds its bottom at some point between June 15th and August 15th. While many had hoped 2016 could be another 2010 and that the commodity markets would rally through the summer, those hopes appear to be fading.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.
