Today’s Spotlight Market
Lumber may be the strongest performing commodity market, as prices are hovering near multi-year highs. A look at the most recent Commitment of Traders report shows speculative accounts adding gradually to their net-long positions, with 176 new net-long contracts being added for the week ending March 5th. Commercial traders seem to be on the other side of the trend, with hedge selling increasing as prices hold near $400.00 per 1000 board feet.
Fundamentals
Some traders have not abandoned all physical futures markets, as Lumber prices have bucked the recent negative disposition towards commodities. Front-month Lumber is now trading at highs not seen since the height of the U.S. boom back in 2005. Good cash market activity and increasing confidence returning to the housing market are factors in Lumber’s price rise. Some Lumber mills have been reported to be sold out of lumber for March delivery, which is supportive to nearby futures prices. Though prices are near multi-year highs, some analysts expect Lumber demand to increase in the coming months as the end of wither approaches and the spring construction season resumes throughout the U.S. With consumer sentiment towards housing starting to improve, we may start to see a renewed interest in new home construction, which has been off sharply since the start of the housing collapse back in 2008. For Lumber to potentially test all-time highs, we would need to see continued demand out of Asia, especially China, which has been a buyer of U.S. and Canadian Lumber lately. However, signs of a housing bubble in the world’s most populous nation may force the Chinese government to take measures to “draw air” out of the rising housing market and to clamp down on construction lending, which wouldlikely put a significant dent in the demand for building materials such as Lumber and Copper.
?Technical Notes
Looking at the daily chart for May Lumber, we notice the market having difficulty trading above the 400.00 level on a closing basis, as it appears that there may be some hedge selling as prices approach this price area. Volume has also started to wane on the recent rally, which may signal that speculators and, more precisely, trend-following traders are not yet aggressive buyers, and may not be unless we see a strong close above 400.00. The 14-day RSI is showing a bearish divergence to prices and is currently holding at a moderately strong reading of 59.84. Resistance for May Lumber is seen at 404.80, with support found at the February 26th low of 368.80.
