Is the indent too deep?
SThe higher cycle is a word that we have heard a lot brandished in 2021, as we enter 2022, the Chinese Year of the Tiger, the question asked by the shipowners is: will we see higher prices in 2022, are we going to see higher prices? we still in the bull cycle?
Basically, we have seen questions about the health of the Chinese economy following mortgage defaults in the real estate sector. A reduction in the RRR this week would suggest the government is ready to act quickly to stabilize the sector and further stimulate the economy if needed. If this is the case and the restrictions on steel production are relaxed, we have the potential to see further support in the Baltic Dry Index next year.
With the index hitting its highest levels in 13 years, we looked at 3 previous cycles in the past 25 years, especially their shape. There is a clear pattern that consists of 5 waves within the 3 highlighted cycles, all of which saw their valuations halved between point 3 and point 4, before rallying to a new high.
We can see between 2020-2021 that we have a higher 3 wave plateau which as we know has created a excited cha1er on the part of the owners due to the increase in reviews. The bullish argument is simple, we have a very clear 4 wave pattern which would suggest that there is one last bullish move within this cycle, if so the FFA market is likely to hit new highs in 2022
The bearish argument is the trickiest, if the lower reserve requirement rate fails to simulate the Chinese economy, then market sellers will also have a legitimate question for market bulls:
Is the market downturn too big at 56.99%?
We’ve seen 53.85% pullbacks, but it’s the deepest yet, so logically the deeper the injury the slower the recovery. As an optimist I mean we have a wave of bulls coming up, history repeats itself, they fill in on themselves. In any normal year I would hit the bull drum hard, I always lean in that direction.
However, this same pa1ern failed dramatically in the iron ore market after government intervention to reduce iron ore prices worked.
For this reason, we will call ourselves an optimistic bull rather than a bull nailed to the wall!
Source: Freight Investor Services