LEONARD LUMBER REPORT: The futures market quietly drifted lower last week

The Lumber Market:

The futures market quietly drifted lower last week ending down $15.50. July futures have been lower 13 out of the last 14 sessions. The cash market was also weak. 2×4 was off $10 while other items went into a freefall. Cash can’t create momentum, and the futures market is honed in on that. The make up in futures is also turning bearish. We saw the industry exit 486 shorts while the funds added 402 shorts. We talked about that red flag a while back. The funds and algo’s disregard trendlines and RSI’s. I have noever seen the buy side slow the funds down when they are entering. We enter the week with fund pressure in futures and a cash theory that mills will blow and go for a while before the duties show up. I’m not a fan of the wall of wood theory, but we did fill in the holes on the last run.

A few weeks ago, we started to see an imbalance developing that could lead to higher prices. That was quickly adjusted, and we are back to normal. That quick adjustment surprised me and showed that the market has not left its typical trading pattern. When the market closes in on the duty increase, prices will adjust higher. In the short run we will continue to run inventories lower until a buy round is created. Hedging is critical. A basis trade is a good strategy.

Technical:

There is nothing friendly about the chart pattern below. May futures are sitting on the 50% retracement point. A close under 549.00 sets it up for a fall to 518.50. Now this is a weekly chart, and May is expiring so it makes it tough to trade off of. What I do see is the support again sitting near 520. Today it is in May. On the 16th. it will be in the July. The market needs some help this week to find balance again. Hedge a little and hope you lose money. I borrowed that comment, but damn is it true.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

Southern Yellow Pine:

https://www.cmegroup.com/markets/agriculture/lumber-and-softs/southern-yellow-pine.volume.html

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm