While the Guggenheim Shipping ( SEA , quote ) exchanged-trade fund is down, the Baltic Dry Index is up. What is causing this nominally bizarre divergence between shipping stock benchmarks? The Baltic Dry Index tracks worldwide shipping prices of various dry bulk cargoes (coal, building materials, grains). It is widely valued as an economic indicator as it measures the demand for shipping capacity as opposed to the supply of dry bulk carriers.
As the supply of cargo ships is tight, an increase in demand is quickly reflected in the Baltic Dry Index. An order for a dry bulk cargo ship is not placed unless the work is definite. The Baltic Dry Index is now at 1,862. The range for the Baltic Dry Index over the past 52 weeks is 1,043 to 2,179. For 2011, it is up over 5%.
An increase in the Baltic index is generally considered bullish for commodity prices, since those ships would not be moving without an increase in underlying demand for coal, iron ore and other bulk commodities.
Despite the increase in the Baltic Dry Index, the Guggenheim Shipping (SEA) ETF is down more than 46% for 2011. It has fallen in value for the month, the quarter and the year.
SEA covers a wide shipping index, not just dry bulk carriers, though. A short position of 8.84% has been established -- and remember, a short position of 5% is considered troubling.
Reasons for these particular shipping stocks' difficulties have been detailed on www.emergingmoney.com in the article, " Shorting transports into a possible commodity bounce ."