Leonard Lumber Report: Is this a Reversal?
Recap:
Reversal?? The futures market was off going into Friday’s trade. It was more of the same until the announcement hit on tariffs. I’m not going to get into what is said or what it means for lumber. The real issue is that the price of this commodity and the duties make it impossible for the mills to make money. That is the reality of it. Friday went from making a new low in March to rallying sharply. That is a textbook reversal. Since there are no longer textbooks in use we have to take a wait and see position.
My opinion of a better demand scenario, albeit muted, is not a factor in real time pricing. The market flows with least resistance. Now what could have happened Friday was an industry starting to look past their elbows to what could be. This market shouldn’t let the buyside back in without paying up. Now paying up is from the last buy, not today’s mill price, but in any case, the price will be more. The new jobs today is taken at low levels with slim margins. Any “paying up” creates a problem. A problem not seen for a few years.
Last Tuesday March futures were $600. All week the funds were rolling and the algo was selling. Both may start to subside.
Technical:
The midweek breakout of the wedge down is still in place. The 554.00 low was the objective. Was the tariff thing a wakeup call to end the slide? It won’t take long to see if it is the roll and algo show tomorrow. If it doesn’t you can expect a short covering pop to mirror the long liquidation sell off early last week.
When there is a lot of money being lost in the same area by both sides, it indicates a pending move to a new level. The technical read today is no help with the direction.
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
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
bleonard@rcmam.com
312-761-263