There has been a lot of concern over the behavior of the Baltic Dry Index (BDI).  This is an indicator we have discussed several times over the past few years, usually with very mixed results in terms of its predictability.

It’s getting attention now because it has cratered 40% in a few weeks, and is trading at a two-year low. 

Many consider the BDI to be a better predictor of China’s Shanghai Composite index than the S&P 500, so the table below shows how the Composite performed in the months after the BDI collapsed to a two-year low.

As we can see from the table, results weren’t too bad, in fact they were a bit better than random.  To see the same results for the S&P 500, click here for the table.

If we just look at the largest monthly declines in the BDI, then the figures change.  In those cases, stock market performance in the S&P 500 and Shanghai Composite are a bit worse than random.

If we combine the two and look for large monthly drops to a two-year low, then stock market performance was mixed-to-poor during the next 1-3 months, but then good afterward.  We wouldn’t read a whole lot into this indicator’s recent decline.

A current negative for stocks is a spike in the OEX Put/Call Ratio.

A jump in this ratio means that traders have been busy trading put options on the S&P 100 index, the largest companies in the S&P 500.  These options are normally traded by more experienced traders.

With that put/call ratio high and the Equity Put/Call Ratio low, the spread between the two is at an extreme.  This is kind of a poor man’s proxy for smart money (OEX options) versus dumb money (equity options).

Such a wide disparity between the two has not been a good sign.

One mitigating factor now is that the Open Interest Ratio for OEX options isn’t at an extreme, meaning that there aren’t a whole lot more put options currently outstanding relative to call options.  At prior peaks, we usually saw both the OEX Put/Call Ratio and the Open Interest Ratio at extreme levels together.

The holiday weeks likely prevented some investors from taking part in their usual stock market polls.  Or maybe they were just feeling good about 2012.

Whatever the reason, the latest survey from the American Association of Individual Investors showed that only 17% of respondents felt the stock market will be lower six months from now.

That’s the 2nd-lowest percentage of bears in six years.As we highlighted for subscribers, however, since 1987 this actually isn’t all that unusual.  And the S&P 500′s performance in the weeks following such low levels of bears wasn’t that bad.

It wasn’t great, either, but at least not as bad as it might seem from a contrary point of view.

The high-end art market is fairly slow-moving.  Many of the major art-price indexes update only monthly or quarterly, based on semi-annual auctions at the major houses.

Increasingly, we’re seeing news of major investors putting up their art works as collateral to fund other investments.  Like this one from Bloomberg.

Uh-oh.

As this article from March 2009 highlights, banks saw a huge rush to use art as collateral.  Citigroup, Bank of America and other dealers saw as much as 50% increases in demand for art as collateral in just a few months’ time.

Curiously, that was just as the stock market was bottoming and the art market was peaking.

We saw something similar with gold.  While some clearing houses and a few brokers started accepting the metal as collateral for loans as early as 2009, it wasn’t until gold went truly parabolic in late 2011 that more jumped on board.

In early October 2011, the leading derivative clearing house started accepting it to back loans, a week after the CME nearly tripled the amount that customers could put up as collateral.

As we can see from the chart, gold hasn’t exactly done well since then.  Which should be a worry to the banks, clearing houses and customers.  Margin calls could be coming soon, depending on the haircut the brokers required when accepting the gold.

The fact that there’s a new surge for art as collateral probably has less to do with the stock market that it did before, and more to do with a newly surging art market.  Like we saw last time, though, when these smart collectors start rushing to put up their works for collateral, it’s often a sign of an overheated market.

This is a decent read on mutual fund investor sentiment.  But what’s not mentioned in the article is seasonality – mutual funds often suffer outflows in December.

Over the past five years, using Lipper weekly data, 88% of the weeks in April have seen inflows to equity mutual funds.  In December, only 23% of the weeks have shown net inflows.

Sentiment is part of the equation.  But so is seasonality.

No Stocks Under Tree: Investors End Year Fleeing Equities For Bonds – Fast Money – CNBC – CNBC