LEONARD LUMBER REPORT: Data is starting to confirm a change in market dynamics
Data is starting to confirm a change in market dynamics. The funds exited 1000 shorts from Tuesday to Tuesday, leaving them with 3500 pre-roll. The Oct 1st. mark tends to be the start of the funds cleaning their positions by year-end. The futures focus is always on the funds and algos as they drive our market. They will rally it further than warranted and drive it lower than the actual market. It does it in all commodities markets. They tend to create a speculative value outside the bounds of the fundamentals. We have seen a few highs and lows recently that confirm it. Two rolls are coming up with the fund-type side, but the decrease in the position on the short side and the decrease in open interest tells me that the fundamentals should become the focus of value. Maybe lower rates and less production will become the focus?
Technical:
Today, we have the strongest tech read in many months. It shows trends and support. The moving averages are stacked up from 520 down to 515. This is major support. The slow stochastics turned up ten sessions ago, and the MACD turned up six sessions ago. This change in momentum is hard to reverse. Should we correct rallies? Yes, but it is still pointing higher.
The change is finding support as the market goes lower. It doesn’t indicate new highs. It will still be a slug. The SYP factor today looks very similar to the Euro factor last year. The cheapness and overabundance keep the buyers out. You want to rattle the cage, show an increase in demand.
Daily Bulletin:
https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf
The Commitment of Traders:
https://www.cftc.gov/dea/futures/other_lf.htm
About the Leonard Report:
The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.
Brian Leonard
312-761-2636