Lumber enjoys 30% rebound, but is the beginning of a recovery?

[MongiIG]

Lumber has staged a 30% recovery this month, with an impending bullish technical signal seemingly pointing towards the potential for further upside

Source: Bloomberg

 

 

 Joshua Mahony | Senior Market Analyst, London | Publication date: Friday 27 January 2023 

Lumber has enjoyed rare period of upside this month, following a particularly difficult 2022 that saw price fall 67%. Understandably, concerns over construction spending in the face of surging interest rates does provide a backdrop that justifies much of that weakness. However, with prices having dropped back down into levels not seen since the onset of the pandemic, there is a case for things to have overstretched to the downside.

Interestingly, the turn of the year seems to have marked the end of that downtrend for now, with the price of lumber up 30% this month alone. This is highlighted by the weekly chart below, which shows a sharp pickup from the 200-month SMA and one-standard deviation channel. With the month almost complete, it looks highly likely that we are set to complete a bullish engulfing candlestick formation here. That same signal market the beginning of multi-month bullish reversals back in September 2021 and November 2020.

Source: ProRealTime

From a short-term perspective, the recent rebound does remain a potential retracement given the wider downtrend and intact $544 swing high. The recovery has seen price rise up towards the 76.4% Fibonacci level, with that level providing the next hurdle in view. With US economic data highlighting the potential for a somewhat softer landing, bulls will hope that demand similarly picks up to provide enough impetus to allow a break through $544 resistance.

Source: ProRealTime