Lumber Returning to Slumber?

Lumber, or timber if you prefer, is the latest commodity to witness a price slide, as can be seen within the following chart.

weekly_blog_130530_01

After rising by a near 200% over 50 months to mid-March of this year, the price has lost half of those gains in just over two months. Some correction!

Judged by the over-sold look of the Relative Strength Index, or RSI, shown in blue at 14.15, we should expect a bounce in the price, at least over the shorter term, with it possibly retesting the underside of the green trend channel. Either way, we would closely monitor any breech of the lower red trend-channel line, which resides at about the 255 level.

So Why Is lumber So Important?

It is mainly due to its use within the housing and construction industry, a sector of the economy that is important for employment and, perhaps of equal if not more importance, housing’s effect on consumer sentiment.

weekly_blog_130530_02

A glance at the second chart above shows a reasonable correlation between the price of lumber and the US housing sector index, where we note the 2-month “early warning” that lumber gave to the housing sector at the January versus March 2009 “lows.” Now note the 2-month lead given by the March 2013 top in lumber to the May housing sector high. Perhaps all of this bullish talk of a US housing recovery is getting a little ahead of itself?

A final, but perhaps more worrying chart for investors’, demonstrates the equally well correlated nature of the US housing sector index to the broader SPX, a measure of America’s finest 500 stocks.

weekly_blog_130530_03

In summary, this is not a time to be slumbering on the job.

 

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