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Lumber

What goes up must come down. Lumber 101Whenever I open up a chart of any asset I like to look at the big picture first pulling up the oldest chart I can find. With Lumber chart I could instantly recognise a pattern called diagonal. I labelled it a Supercyclic wave as it has taken nearly 48 years to complete. After the competition of this pattern usually you can expect a bear market as a correction. Correction takes place both in time and price. In this case of lumbar we had a very quick correction of 73.45% in price as a first leg in May 2021 only lasting 3 months. Now i think that a Bull market that lasted 48 years corrected only in 3 months and the correction has finished as we are already up 190% from August 2021 lows, does not seem very convincing. So I expect the price to reverse close to ATH again and keep moving up and down like a kangaroo for a long time. So far it's looking like a Zigzag pattern. Am going to have 3 attempts as a short with proper risk management. The Trade Short at 1200 Stop Loss - 1311 TP 1 - 843 TP2 - 618 This is not a financial advice. I am a degenerated gambler so wish me luck.
LShort
by UnknownUnicorn10209036
2
What is lumber telling us about the economy?The lumber price was nothing short of wild in 2021. After rising to a new all-time high at $1711.20 in May, the price plunged, reaching a bottom at $488 per 1,000 board feet in August. Lumber fell to under one-third the price at the high in three months. Rates are heading higher Lumber has been rallying A spring scramble for new homes Infrastructure rebuilding requires more wood Lumber says inflation will continue unless the Fed gets serious The lumber futures arena is illiquid. On most days, fewer than 500 contracts change hands. The total number of open long and short positions at 2,458 contracts at the end of last week reflects the low market participation level. Crude oil’s open interest was over 2.01 million contracts, and gold’s stood at over 531,000 contracts. The lack of liquidity makes lumber untradeable for speculators and investors. Hedgers experience problematic margin calls because of the high volatility. Illiquid markets like lumber tend to experience far more price variance than liquid markets as bids evaporate during selloffs and offers to sell disappear during rallies. The low volume and open interest level exacerbate price moves, creating highs and lows that defy logic, reason, and rational fundamental analysis. I do not trade lumber as the futures arena is a roach motel. Getting into the wrong position is easy; a risk position in the correct direction can be problematic. When wrong, getting out is often impossible as limit moves are the norm, not the exception. While I do not participate, I am a keener observer of the price action in lumber as it is an industrial raw material that provides clues about the path of least resistance of other industrial commodities and the overall economic landscape. Rates are heading higher Last week, the Bureau of Labor Statistics reported that the consumer price index rose by 7% in 2021. Excluding food and energy, inflation rose 5.5% in 2021, which was far above the Fed’s 2% average target rate. Measuring inflation by excluding food and energy may suit economists because prices can be highly volatile, but it is a mirage for the average consumer as food and energy make up significant percentages of household budgets. Meanwhile, the producer price index of wholesale prices rose by nearly 10% in 2021. The latest inflation reports only increase the chances of the end of quantitative easing and liftoff from a zero percent Fed Funds rate in March 2022. The Fed will likely begin to reduce its swollen balance sheet simultaneously which will tighten credit further out along the yield curve as bonds roll off and are not replaced. The central bank is not likely to miss a step as it shifts from quantitative easing to quantitative tightening. The latest CPI data validates that the US Federal Reserve is far behind the inflationary curve. Tightening credit via higher interest rates has become a certainty in early 2022. Lumber has been rallying Lumber may be one of the most illiquid futures markets, but it is a bellwether industrial commodity. After a highly volatile 2021, the lumber price moved back into bullish mode after reaching a bottom in August 2021. The monthly chart (featured above) highlights that nearby lumber futures settled at $873.10 per 1,000 board feet at the end of 2020. Lumber was already trading at an elevated price. Before 2017, the all-time high was in 1993 at $493.50 per 1,000 board feet. While many commodities tend to rise and fall to illogical, irrational, and unreasonable prices that defy fundamental and technical analysis when they move, less liquid markets tend to experience magnified price volatility. During significant price moves, bids or offers in less than liquid markets can evaporate, causing price gaps and moves to levels that market participants never believed possible. Lumber futures rose to a high of $1711.20 per 1,000 board feet, an all-time high, in May 2021 where they ran out of upside steam. They proceeded to plunge to less than one-third of that price over three months, reaching a low of $488 in August 2021. Lumber reached unsustainable prices on the up and downside. At the end of last week, it was elevator up again for lumber with the price above the $1300 per 1,000 board feet level. March lumber futures settled at $1308.70 on Friday, January 14. The total open interest of 2,458 contracts and daily trading volume below 500 contracts make lumber untradeable, but it is a critical market to watch as it provides clues about other raw material prices and the economy’s overall state. A spring scramble for new homes Lumber’s latest ascent is likely because of a scramble to buy new homes before interest rates move appreciably higher. Wood is a critical construction component. The Fed’s plans to increase short-term rates and tighten credit will not happen overnight; it will be a slow and steady process that will take years. Three factors support the increasing demand for new homes in 2022: Rising interest rates will push mortgage rates higher over the coming years. New home buyers are under pressure to lock in interest rate risks at historically low levels as 30-Year conventional mortgage rates remain below the 4% level. The migration from cities and high-tax states supports new home building in low-tax states like Florida, Texas, Tennessee, and Nevada. In those states, home buyers are waiting up to one year or more for new home deliveries as builders cannot keep up with the demand. The incredible gains in real estate prices since early 2020 have caused a frenzy of buying where homes are selling above initial offer prices and have been rising each week. Few things entice buyers like a bull market trend. Framing lumber is at the heart of the construction business and is pushing wood’s price higher in January 2022. Rising interest rates mean that procrastinating buyers are likely to pull the trigger over the coming months. Infrastructure rebuilding requires more wood In 2021, the US passed an infrastructure rebuilding package to build and refresh roads, bridges, tunnels, airports, government buildings, schools, and many other parts of infrastructure over the coming years. Construction projects will require wood, increasing the demand. Meanwhile, Canadian supplies have struggled to keep pace with the US demand, putting upward pressure on prices. New COVID-19 variants only increase supply chain bottlenecks and mill issues for the lumber industry. Lumber says inflation will continue unless the Fed gets serious The trend in lumber remains bullish, with the price now above the 2021 midpoint at the $1,100 per 1,000 board feet level. We are coming into the peak season for construction projects in the spring, which means demand is likely to continue to increase over the coming months. Lumber’s price action has been head-spinning. The wood price is a barometer for the housing market and all industrial commodities. Over the past weeks, crude oil, copper, and other industrial raw material prices have been rising. WTI and Brent crude oil prices were back over the $83 per barrel level in early 2022, threatening to move to new multi-year highs above the early October 2021 peaks. Copper traded to the $4.60 per pound level last week, the highest price since October 2021 before correcting to the $4.40 level. Natural gas prices were back over $4.25 per MMBtu, after trading below $3.55 in late December. Lumber had led the way higher for many industrial commodities as the price eclipsed the $1000 level in early December when most industrial commodities were under selling pressure. Lumber is a bellwether and an indicator that provides clues about the industrial commodities sector, and it is also an economic barometer that tells us about the housing market. In mid-January 2022, the wood market is screaming that inflation remains the most significant financial challenge facing markets across all asset classes this year. The US central bank’s most recent forecast of a 0.90% Fed Funds rate in 2022 and 1.60% in 2023 is far short of what is necessary to stem inflation. Lumber’s price action screams that the Fed is far behind the inflationary curve. -- Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
L
by Andy_Hecht
1
Are Commodity Prices Going Up? Lumber, Cash Crops, And Iron OreSome interesting factors are currently affecting commodity prices. Supply chain bottlenecks, unpredictable demand from economies reopening, geo-political tensions, climate change policies are just a few examples. I find it helpful to review the state of the commodities market periodically. In this article, we will examine Lumber, Cash Crops, and Iron Ore. Commodity prices: Lumber Lumber Mills have done their best to increase timber supply in 2021, with production hitting a 13-year high to meet the unpredicted demand from new house builds and renovations. After reaching a peak of over US $1,600 per thousand board feet in May this year, Chicago Lumber Futures have retraced to US ~$640 per thousand board feet as of early November. It could be said that the psychological level of US $600 is very supportive of this commodity. November 2021, and January and March 2022 Future prices are also trading above this level. Speculation is rife that Lumber is due for another price run-up, with Sawmills cutting production to counter the gluttonous output earlier in the year. One indicator supporting this theory is Chicago Lumber Futures increasing by just-under ~40% since plateauing in August, at one point hitting US $820 in mid-October. Commodity prices: Cash Crops Corn and many other grain Futures are currently trading at premiums or multi-year highs, including Wheat and Oats. As of writing, Corn, Wheat, and Oats are trading at 555 USd/Bu, 781 USd/Bu, 716 USd/Bu, respectively. Several factors have led to inflation in grain prices. For one, we can thank (or curse) the high cost of crude oil. Due to WTI and Brent trading US ~$80 per barrel, demand for ethanol has been pushed to the extreme. It is important to note, that in the US, Ethanol is produced predominantly by fermenting Corn (25% of the Corn grown in the US is used for ethanol production). Kluis Commodity Advisors does not believe the prices of grains is sustainable, even in the short term. The Advisors go so far as to suggest that farmers should be hitting the sell button right now to make the most of the grain rally. Butting up against this prediction are forecasts for a continuation of unfavourably dry weather, which have already put the supply of Cash Crops, including Wheat and Oats, in a precarious position. Commodity prices: Iron Ore From mid-September until the end of October, Iron Ore appeared to have found a safe space above US $100. Now, after a steep decline beginning October 27, 2021, Iron Ore has started to test May 2020 lows, close to US $90 per metric tonne. The commodity is grating against predictions by ANZ Bank (ASX: ANZ) for it to “find a floor around current levels”. Demand (or lack thereof) from China is what has driven the price of Iron Ore sub-100 dollars. Chinese authorities have ordered its steel manufacturers (large consumers of Iron Ore) to cut production to meet targets to reduce energy consumption and pollution across its provinces. China’s production restrictions are scheduled to last until mid-March 2022. According to S&P Global, Iron Ore outlook is unfavourable, with “pricing risk is to the downside” as supply tends to increase in the latter half of the year.
L
by BlackBull_Markets
All time high break!In my "Copper could go to $8, $20 even" idea published on March 13th I explained I was looking to buy copper, and expected it to go up over more than a year. I wanted to see the price consolidate over a longer time than what it did and ideally closer to all time high. It is still possible that it will, just like gold did, after going up significantly above ATH, just like gold did. I missed out on buying during consolidation but I FOMO'ed on the ATH breakout, I'm a bit mad because I went in with only half size; I have no problem taking bad trades with full size but when I FOMO I take smaller bets even though I keep winning, the margin restrictions do not help also to be fair, once again thank you useless regulators. In the long term as I said in previous ideas, Copper $8 easy, even $20. If Yellen & the FED follow the example of Rudolf Havenstein copper $20,000,000 why not 😀 How does the CME limit up work when there is hyperinflation? Or strong inflation and strong price appreciation? NOW is the time to ask this question, it's like with negative Oil prices, you had to think about it BEFORE the events, not AFTER. Prices could get frozen. We are far from this happening, it will not happen overnight and implied volatility does not simple go from 0 to 100 overnight. For now we keep an eye on volatility and when it starts getting extreme we look for answers. And we never go all in so even if prices get frozen all our capital won't be. With Oil I was relieved to see the CME made an announcement that prices could go negative, days before it did. I checked before buying (I was trying to take advantage of the contango). What happens when prices keep going up is not clear, but if and when volatility starts increasing dramatically the CME and maybe our brokers will let us know. Remember Oil volatility increased very progressively. The second question is in the short term, meaning the next couple of weeks or even months, where could the price be heading? Will it just continue higher and higher or will it do a spike as it's doing now, then have a big correction around ATH? To help answer this question we can look at other commodities, first gold. But copper is not gold, it is an industrial metal, used for real, no one is accumulating copper as a store of value. So next let's take a look at lumber which everyone knows has been going and going and going. Lumber: retest, but only after going ridiculously high. I copper did this... I'd be happy. We can look at a couple more examples, the price action is repetitive. And what best to compare to copper than copper itself? The price before the 2005-2008 copper bull run was choppy, and it stayed choppy for a while after going past all time high. It's logical and obvious. Participants do not magically go from uncertain to mega bullish overnight, and the public (nobs) do not simply all "hear about copper" AND buy overnight. Everyone I think knows about Bitcoin, most of the public heard about it progressively over september-december 2017, mostly the last 2 months. Some day someone might have heard from a colleague "hey have you heard about this Bitcoin thing?", it's progressive not instantaneous. And then the public, "mainstreet", joined Bitcoin from late 2017 to early 2019, so over a 1 and a half year period. The price of copper was vertical before passing all time high. So I expect it to continue on the same trajectory. Simple. Just like Lumber last year. It's funny to compare copper and lumber, when Lumber past ATH in 2020 it did a doji on the daily chart, with the body in the middle, and copper just had the exact same candle on ATH last week on the 4 hour chart. Lumber is a MACHINE which has been offering the rich a crazy risk to reward. Most of us are poor plebes that cannot afford to buy a full lot of lumber (worth $100K-$200K you have to multiply the price by 110) with a risk of $10,000 and potentially much more on a gap. Plus most retail brokers do not even offer lumber. But we can buy copper mini or even micro lots. Which brings us to the third question. Where to buy? We already started to answer this question and looked at some examples. In reality I see only 2 ways to buy (be it spot or a call): - On a retest of ATH - FOMO, for example on a 1 hour red candle There is nothing in between for me, if the price reverses then I would expect it to go all the way down to ATH (implied volatility, support and all). Considering how the price has been behaving I'd expect something similar to lumber daily chart but on the 4 hour chart. I would buy any inside bar for example. Possibly even any 1 hour red candle. And as it goes up keep buying more.
COMEX:HG1!Long
by MrRenev
1
✅LUMBER SWING TRADE OPPORTUNITY|LONG🚀 🏛LUMBER making a massive correction From the spectacular bubble like covid rally And the price will soon be retesting an important weekly support From where I am expecting a pullback upwards With the chance of retesting the level above SUGGESTED TRADE: ☑️Buy CALL options 600$ strike ☑️Expiration end of the year: ☑️Either November 2021 or January 2022 ☑️I would go for January ☑️You can see the options chain for lumber futures at the CME website ✅Like and subscribe to never miss a new idea!✅
LLong
by ProSignalsFx
3
✅LUMBER|WHAT A RIDE😱 🏛LUMBER must have been one of the best performing assets since the pandemic begun With the price increasing by whopping 581% from the covid crash lows Such a massive surge was determined by the home building and renovations fad With the disrupted supply chains adding fuel to the fire Now, however, the pandemic hosing boom is over And the price dropped by 71% Almost touching the pre-crash high of 2020 I am swing bullish on lumber anyway, as I am more inclined To believe in the higher that normal inflation in the next 5 years ULTRA SWING LONG🚀 ✅Like and subscribe to never miss a new idea!✅
LLong
by ProSignalsFx
5
Lumber bubble pops - what does it mean?Some may not be aware of the importance of lumber price movements. Basically lumber rocketed like nobody's business, then crashed (>50% correction) pretty quickly. This post is not an analysis of why lumber prices rose so crazily. Viewers will need to do some background reading. The collapse was the worst seen since 1978 . That's something to chew on. In essence it was a bubble that popped. It was about demand going wild for all sorts of reasons, with no true underlying 'value'. That phenomenon has been seen repeatedly across all asset classes. It happens when something is fundamentally wrong with market booms. Those who would purchase lumber wised up; the market became saturated in extreme overbought territory, and those who would have been using lumber (for house-building etc) basically switched from 'commodity' purchases to 'services'. That's the broad brush and I can't give chapter and verse here. People went on holidays! I didn't say 'everybody'. Yes - read about it. They decided, ' Now is not a good time - I'll do some travelling and living instead '. Funny but true. But what's underlying the lumber bubble pop, is that the Housing market has suffered a similar pop. Ahhhh.. some will disagree with me because they're not seeing much about that in the news. Well BigMedia news is usually 3 to 6 months late! And of course, people believe more than 50% of what they read in the #LameStreamMedia news - but will never admit that. I'm not about to deviate onto the metrics for the Housing Bubble pop here. Serious traders and investors can find that on the net from reputable channels on popular non-conventional streaming channels. But don't expect the whole picture to be found in one place. The lumber pop, in conjunction with the housing pop - is basically bad news for loads of commodity sectors. If you don't believe me go back to 2007-2009. This is literally where the 'house of cards' (pun intended) collapsed. History repeats itself because human nature doesn't change much. Disclaimers : This is not advice or encouragement to trade securities on live accounts. Chart positions shown are not suggestions intended to assure you of an advantage. No predictions and no guarantees are supplied or implied. The author trades mostly trend following set ups which have a low win rate of approximately 40%. Heavy losses can be expected if trading live accounts. Any previous advantageous performance shown in other scenarios, is not indicative of future performance. If you make decisions based on opinion expressed here or on my profile and you lose your money, kindly sue yourself.
L
by Captain_Walker
2
Bitcoin to 3000?Cathy Wood from Ark innovation brought my attention to the price of lumber, which had a run in 2020 and now it seems has topped, just like bitcoin. I checked the relation between lumber and BTC and they are very correlated. They both had bullish price rise in 2013, 2017 and 2020. When we compare they price patterns, lumber could forecast the future price action of BTC. In 2013, after a bull run, Lumber made a head and shoulders pattern then plummeted down under the previous ATH until the last bottom.
LShort
by GaborFzks
1
Housing - Bubble PopIdea for Housing/REITs (VNQ): - The Housing Market will crash. I am short REITs. - Lumber rose 400% in a year during a global crisis and then dropped 50% in a month... This is not a correction, but a bubble pop. - China reining in commodity prices. They announce that they will soon release state stockpiles of metals: www.bloomberg.com - State firms ordered to curb overseas commodities exposure. - Fed continues MBS purchasing with QE, despite RRP skyrocketing. Why? The MBS and Housing bubble is critical, and it is ready to collapse. - Homebuyer sentiment drops to 10 year low: finance.yahoo.com - Homebuilder sentiment declines to reach a 10 month low (NAHB): news.yahoo.com - Housing prices being speculated such that locals are priced out of the market. Institutional investors and State-backed institutions buy up neighborhoods as they seek yield in an overheated global market. - The Credit Cycle has turned down, and the liquidity flows have been shut off. Institutions can no longer bid up their own assets. - As commodities prices crash, it will become cheaper to build a house than to buy one off the market, leading to increasing supply and decreasing demand. - When housing no longer provides yield, institutions will dump their assets onto the market and prices will crater. - MBS's and Lumber leading the crash, the REITs will soon get the hint. GLHF - DPT
AMEX:VNQShort
by UnknownUnicorn1043646
41