LEONARD LUMBER REPORT: The market is dropping subtle hints of extended weakness
Lumber Weekly
Recap:
The market is dropping subtle hints of extended weakness. A few months ago, I confidently said that $500 September futures held value. That may be different for November this time around. The marketplace has gotten in front of their remaining 2023 needs. Obvious deals out there are getting ignored. This side of the trade is never complacent. Rather they are always aggressive. In any case, they were the ones putting in the bottoms this year. Another quandary is that the 4th. quarter numbers, while expected to be down, will be just that. The fluidity of the marketplace all year has saved it. Many are turning cautious.
Friday was the perfect correction. We came in with a 20% RSI and the shorts were up $18 for the week. That is a significant gain in today’s market. Add to it the discount and the feature was shorts taking profits. Open interest does not reflect it, making me wonder if as the specs exited, the funds added. The spread may be the way to go again.
Macro:
Throughout the system, no one seems concerned about the rate issues. We heard a frustrated Fed governor telling us that there may be a couple more hikes. Now, the key to rate stabilization is to drain all the excess QE with QT. The Fed has been trying to pull $100 billion consistently. What we heard on Thursday was that the defense department received $258 billion from the Inflation Act. The Fed’s frustration comes from the added QE.
Summary:
Friday the market corrected the RSI to 28.20% with a rate of change of 2.3 to 1. The correction would have been much more significant if November held its intraday gains. That leads me to believe there is more correction to come. I mentioned last week that the 100/200-day cross down would not accelerate selling. We will keep a close eye on it after the bigger-than-normal move-down last week.
Daily Bulletin:
https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf
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
312-761-2636