If we had two words to describe the lumber market of late, they would be: Dead…. Wood. To wit: Lumber prices stand at their lowest levels in thirty years, Canadian Timber mills are shutting down, and the entire future of the forestry industry is up in the air.
“It’s hard to convey how tough it is right now,” explains one lumber company manager. “There’s no log anywhere you can make money off even if they gave it to you.” (Flathead Beacon, MT)
Which leaves the most obvious question – Why?
Well, according to the mainstream analysts, lumber’s troubles are written on the crumbling walls of the U.S. real estate sector, as this recent news item makes clear: “Lumber supplies… the victims of burst housing and materials bubbles. When the Housing market slowed, prices for these products slid.” (Sacramento Bee)
But check again and you’ll find that that kind of logic is built on a faulty foundation.
Case in point: The five-year long U.S. housing bull market did not run out of steam until July 2005, when the S&P 500 Homebuilding Index began to turn down from its all-time peak. From there, various other measures such as existing home sales, new home sales, and housing starts also started to reverse course.
Lumber futures, however, reached their respective peak in August 2004 – an entire year earlier – when prices turned down from their highest level in 11 years.
Meaning: Long before the call for and construction of homes began to crumble, lumber prices were already falling. So, again – why?
Give up?
Well, you don’t have to. In the February 28 Daily Futures Junctures, Elliott Wave International's Senior Commodities Analyst Jeffrey Kennedy pulls Lumber out of the woodwork. With detailed price charts, Jeffrey examines the INTERNAL force behind the market’s changes in trend: Elliott wave patterns.
In lumber’s case, Jeffrey’s second favorite pattern of all 13 is at large: an Expanded Flat Correction. Here, Elliott Wave Principle – Key To Market Behavior provides the following definition: “The word ‘flat’ is a catchall name for a any A-B-C correction that subdivides 3-3-5. In an expanded flat, wave B terminates beyond the starting level of wave A, and wave C ends more substantially beyond the ending level of wave A.”
And, in Jeffrey’s own words: “If lumber stays on course, prices will be” headed for a 'sharp' move in one direction.
The opportunity in lumber is built with objective insight. Get the complete February 28 Daily Futures Junctures text – and a 2-minute video – via a risk-free subscription today.