LEONARD LUMBER REPORT: The futures market continued to rally last week

The Lumber Market:

The futures market continued to rally last week. This time, the driver was the fund liquidating shorts. Two weeks ago, it was a substantial cash trade. Last week, it was the roll and liquidation. The cash trade was good last week, but the futures trade was all fund related. On Friday, a mill went off the market, which resulted in nary a ripple in futures. At this point, we need a third catalyst to help the market higher.

Factors to watch:

• A slowing Euro supply

• Quota information (If the producers get the funds back as usual, this is only a forced savings account and should not be added to the final cost.)

• I’m not sure, but I think we went through a day or two without the President calling out lumber. At some point, you will have too much wood or not enough. Those with too much wood can hedge at a premium and wait it out. Those who do not have enough should go back to the old-fashioned way of buying deeply discounted items and running with those until the smoke clears.

• Spring… misery loves company, so any consistent warm weather will wake the stragglers up. ( This is not a market factor. Anytime we went into spring bullish, we would find the wood was already bought and delivered.)

Technical:

The market broke out to the upside of the wedge, which measures $648. I am still in the camp where the market is headed. The issue developing is that this week’s trade shows up on the charts as a big negative. Lumber historically doesn’t creep higher and then explode up. It tends to trade sharply lower for a day or two. Fund liquidation won’t get the market to $648. Adding new shorts will.

If the market sentiment, which is about 95% bullish, can turn down, some higher levels will be hit.