LEONARD LUMBER REPORT: I would not call it the Great Reset, but there was definitely cash trading last week
I would not call it the Great Reset, but there was definitely cash trading last week. What started as traders covering cash turned into a global buy. We also saw a mill go up $18 in less than 24 hours. That was reminiscent of the 21-22 trade when they threw a dart each morning. Let’s face it: the mills need to get prices higher, and their marketing for the last 18 months hasn’t done it. The marketplace was extremely underbought, and they took advantage of it. Is it a tighter market? Most likely not, but like futures two weeks ago, it is a “shot over the bow.” This spike results from the lack of buying and will be how the market trades in 2024.
Futures were up $28 for the week, with most coming on Thursday and Friday. The prominent driver in our market is whether the funds are selling or buying. They are the mover of the market today. Friday’s high volume and drop in January open interest could signal a slight exit by them. Their trip number to exit is closer to the trade going into the end of the year. It is a double-edged sword as the liquidation will then show up as new selling on the next break. More liquidation will show up early in the week.
This rally has created a strong upward chart trend. In January, we are sticking to the gap area as the objective. The gap sits from 533.50 to 545.50. A futures run to that area equates to a $410 cash market. The problem is that this type of run can’t stop, pull back, and then go again. A slowdown will bring the market back down and send the trade to the sidelines. The short-term technicals are slightly overbought. The RSI in Jan is 77% so there is room. What is worrisome is the upper Bollinger band is sitting at 522, putting January well over that band. A pullback or sideways trade is needed to correct it. The other item on the radar is the small gap left Friday from 512 to 511.50. Fill it and you’ll shut the market down.
I like the chart trend and the renewed enthusiasm in the cash trade. My issue is how quickly the market finishes an inventory build and then hibernates. The market will give us that answer early this time.
The Commitment of Traders:
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.