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Saturday, May 11, 2013

Review of Lumber, Three Months Later

While the rally from the lows has been impressive, it still does not suggest an inflection in the trend. The pattern of lower highs and lows remains undisturbed since 2006. Despite some bullish prediction for housing, intense outflows by connected money as the price surges warrant skepticism, if not caution, until the setup changes.

 Rising Lumber Prices Interpreted As Bullish For Real Estate  January 31, 2013

Concentrated and polarized markets foreshadow not only trend changes but also consolidation periods.  Lumber displayed concentration in late 2012.  The invisible hand was telling us that at least a consolidation period lied ahead.  Up trend finally 'broke' in early April (chart).

What is the invisible hand doing now?  It's accumulating the decline.  A DI reading above 60 suggests concentration and increases the probability that the rally will continue.  US home builders traders should be watching setup closely.

Chart:  Lumber (CC) And Lumber Diffusion Index (DI)




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