LEONARD LUMBER REPORT: This has turned into a strong upcycle in the cash and futures markets

Recap:

This has turned into a strong upcycle in the cash and futures markets. I thought the market would correct after 23 days up and a very weak starts report, but it didn’t. The long lag between buys left many short cash. Yes, those holes are filled, but the wood is also going out the door. The buy-side hasn’t formed its rhythm yet. The rail issue isn’t helping the equation, as everyone knows it won’t be a factor until it is. The market has spent a few years in this area. The reluctance to participate at value is confusing.

Let’s take a look at the 2023 and 2024 cycles. In 23, the market traded flat, but with a good takeaway. It started near its lows and drifted marginally higher by year-end. In 2024 it was
“load the boat” coming into the year only to see the pace of outtake slowing. Today, we are seeing that pace pick up, similar to 2023. If the pace stays steady, there is a chance for a continued drag higher.

Technical:

The elephant in the room is the obvious. September futures are up $82 from their lows four weeks ago and $119 from July’s settlement. The fundamental question is whether Sept has returned to normal or is $40 too expensive. The technical question is whether Sept is overbought. On the fundamental side, the creep higher in the cash market keeps the higher futures levels in check. A good correction in futures could put them at a discount?? The technical picture is somewhat confusing up here. It lacks the momentum to go higher but will not enter into the overbought condition. There is more room for the upside. The issue with a pullback is this lack of momentum could stall the market out. Scale-up hedging is still the strategy. This type of market stops on a dime giving you little chance to hedge. If you wait till 560 or 580 you may miss it.