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Lumber enjoys bumper week as the bulls return to the fold

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Lumber has been hit hard over recent months, but this week’s outperformance looks to signal a bullish shift for the commodity

BG_LUMBER_361640647.jpgSource: Lumber
 Joshua Mahony | Senior Market Analyst, London | Publication date: Friday 08 July 2022 

Lumber has enjoyed a welcome boost this week, with the commodity currently the best performing asset amongst indices, FX and commodities. Unfortunately, bulls will know well that this is simply respite from a prolonged period of weakness. Nevertheless, we are seeing technical signs that we could be in for a period of strength. The weekly chart highlights how cyclical this market has been, with wide swings evident over the course of the past two-years. That consistency in each period allows for good intraday-to-medium term trading conditions. The recent two-week recovery comes off the back of a decline towards, but not below, the key $460 support level. A decline through that point would signal an end to the long-term uptrend in play. However, with price on the rise since the June low, there is a strong chance we have seen the bottom established here. One clue to support that theory is to look at the stochastic oscillator, with the line crossing back up through the 20 level following an extended period in oversold. Typically, a move out of oversold or overbought provides us with a good signal as it shows the tide is turning after an extended period of directional movement. The vertical lines and green arrows highlight how the past three occasions have brought about great buy signals for traders. Those three moves have averaged five-months of upside in the wake of a bullish stochastic breakout signal. On this occasion, the trend of lower highs does point towards a possibility that the rally could be shorter in nature.

LumberWeekly080722.PNGSource: ProRealTime

From a daily perspective, we have seen price rise up through trendline resistance to exit a descending channel. Notably, we have also seen price push up through the $714 resistance level, bringing an end to the trend of low highs. While the overbought stochastic could bring a near-term pullback once we see it drop below the 80 level, such a move would be viewed as a providing potential bullish entry opportunity.

Lumberdaily080722.PNGSource: ProRealTime
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