Leonard Lumber Report: The extreme sideways trade continued last week
Recap:
The extreme sideways trade continued last week. Futures dropped a quick $20 then recovered half by Friday. That is nowhere near what the industry experienced a few years ago, but it’s notable when margins are laser thin. The best way to summarize last week’s move was that prices fell to close the gap and then rebounded. The market was actually heading $40 lower, but was saved by another rumor. Today we’re holding a higher trading level based on business, and that must be respected. Is it better for a week or a month? For now, we hope it lasts a week. Hedging becomes even more important in these markets. Selling a $60 premium is simple. Buying a $60 premium for a forward sale is not. This wide gap in the trade indicates a market turning. Prices will move higher with many reversals attached. With $20 swings, it won’t upset the market but will affect profits. That’s likely what we saw last week with homebuilders’ stocks being hit hard. The facts are that more building will squeeze margins, while less building will reduce overall sales; it is not a reason to buy.
We come into the week looking for a push back up through $620 in November. The fact that a mill is getting a few cars done with the 10% added is a positive, but it will not be enough to change this pattern of trade. The roll could add a positive to the upside.
Technical:
That was a perfect correction last week. The futures fell, closed the gap, and rested the oscillators. It isn’t a buy signal. The market has to establish a higher trading level before that happens. Right now, every dollar up is a battle, while the downside has some room. Scaled up selling the last three years has paid off. Tell me this one is different….. Again.
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