Short Entry in Lumber came 3/31/15 at 275.20. Lumber continues to be a weak-link in the ‘soft’ space, as per the major breakdown at the 272 level — representing quarterly structural lows, defined as a supportive level in this continuous contract since May 13′ pivot low. This market is currently trading in line with Jan 12′ levels. I’ve attached the weekly chart of Lumber below; I’ve included the weekly MACD in the lower panel, which addresses the over-sold nature of this market, given the momentum weakness to the 1st standard deviation, as per the ‘white’ horizontal line overlaying MACD data (< -21). This depressed, oversold level in momentum has only occurred 7 times since 93′: 3 of 6 (excluding this latest MACD read) reads on the ‘slow’ MACD have produced 50-100% rallies over the ensuing 6-12 months, whereas the other 50% of occurrences resulted in a further 3-12 months of perpetual weakness/basing, followed by 75-100% moves thereafter. If I were a long term investor looking at Commodities, Lumber is an example of having strong odds of being much higher in 12-18 months from now. The other possibility that we should be open too, is the fact that Lumber may be sending an ominous message to the equity/housing space, as per its deflationary action. This can be gleaned by the fact that Lumber lead the housing market by 2yrs (2006) and the broad equity market by 3 yrs (2007), when it made its final high in Aug 2004. By July of 2007, Lumber had already declined by -33% (460 in Aug 2004 to 306 in July 2006), prior to its final low inline with the broader market in Feb 2009 at 140. To date, Lumber has declined from the 410 level in Mar 2013 (410-243 = -40%) over 2 years. There have been 4 bear markets in Lumber since 93′: 3 occurrences with duration of 2 yrs (93′-95′, 96′-98, 99′-01′) and 1 duration of ~5yrs (04′-09′). From a timing perspective, Lumber is in the zone of putting in a final low, making this price level a good long term buying opportunity, or we have some further downside. I’m not a discretionary market-timer, and I just try to read the bread crumbs — and stick to system trades.
Futures Trading 