LEONARD LUMBER REPORT: The feature last week was the fact that the futures market made a new low at a time when there was a massive round of short covering

The Lumber Market:

The feature last week was the fact that the futures market made a new low at a time when there was a massive round of short covering. That should have at least kept the market flat and at most rallied it sharply. By Thursday, the mills were in full panic mode and looking for orders. That brought in the noise of the week, with the conversation focused on a 15% tariff on Europe, 232, and a mill shutting down. By Friday, the industry saw a sharply lower print as the Fed, I mean Random, dealt with faulty data. September futures ended the week after all that excitement $7 lower. The noise on Thursday did chase some newly positioned shorts out.

The Commitment of Traders report again showed a steep drop in industry shorts. It also saw a sharp drop in fund longs. At 7000 open interest, the market is fully balanced. There had been a shift out of the short side for the funds, but the long side never picked up much. The funds, in general, are maintaining a very soft position in lumber.

It looks like Carney fell into line with the US, ending many of the added tariffs he imposed. We heard about the shift on Friday. This, like everything else we hear, lacks substance. I’m still in the camp that the smart people in the room want to end all of the duty and tariff drags and end up with a number.

Finally, the majority of economists out there are taking some of Powell’s delivery from his speech as meaning that there will be a cut in September. Nothing has changed. There are a couple of inflation reports coming out before the next Fed meeting. They will be inflationary. The Jobs report has to be weak. That said, a reduction in short-term rates does not immediately affect long-term rates. A quarter point in September will have little impact on the mortgage rates. The second cut will.

Technical:

September made a new low for the week and then rallied. At 17% RSI and low open interest, this was expected. When you throw in outside noise, the industry now turns hypervigilant. It no longer matters whether the news is correct or not; it only matters how the trade reacts. I do not use short-term moving averages very often because we are an all-in or all-out market. All in hedging all out rumors. This are no support or resistance points, per se.

The takeaway from the technical side is that if futures take out the lows of 588.00 this week, there is a fundamental problem much bigger than the economists and experts think. I don’t see it, but I have been wrong before.