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Strong Trend for Lumber

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The bottom may be in but it could also retest the 30,000 level. Let's wait and see and be ready to take a position when it all becomes clear.

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@draa46,

Yes it is quite possible that the bottom may be in but none of us simply know. It could retest the $30k level or possibly break below it. Time and price action will tell us the answer going forward.

Any rise in interest rates could pose a problem for Lumber prices increasing. With the US GDP Growth and unemployment figures giving the US Fed room to increase rates should such strong figures continue to be announced. 

The Lumber futures market is not known as a liquid market so for traders going both 'Long' and 'Short' remains full of high risk. In fact Lumber is most probably one of the most illiquid markets within Commodities.

What we have seen is an all time high followed by a brutal correction. For anyone who is a value investor or even a long term value trader then there is an opportunity to go 'Long' on Lumber. 

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Weakness in Lumber prices is potentially a warning indicator and 'Red Flag' for me in terms of economic activity.

Now it is no surprise that major US indices and indeed other major indices around the world have seen some downward price activity. 

Has Lumber bottomed? I do not know but any move upwards towards $40k may indicate that it has. However, if trouble strikes in the US and its economic activity begins to decline then we could see further downside to Lumber prices. This is not out of the question. 

 

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This could now be the turn around level but I have to agree there may be economic factors that develop to depress the price further.

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@draa46,

Yes, there was another bounce off the $31500 level. It seems there is a little bit of support there but whether it can hold I do not know.

Softwood lumber sales slow to a trickle as prices flounder

https://www.woodbusiness.ca/softwood-lumber-sales-slow-to-a-trickle-as-prices-flounder/

The price reacts and behaves for a reason. Once a trader understands the reason then it can help them make a decision on whether to enter a trade 'Long', 'Short' or stay on the sidelines and monitor the price action. 

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So it seems the $30k level is holding. We have seen what in my opinion is pretty common in Lumber is a large 1300 + points move upwards.

So roughly a £3.5k margin would have netted you around £1.3k in just one trading day. If you now add leverage into the mix and then one can see why Lumber is a very interesting proposition. Now if you are trading either daily or by holding in the direction of the trend over several months / year and you can see the level of profits which can be achieved. 

It is all about risk/reward and I accept the risk ratio to capital will not work for many or they simply will not be comfortable with it. This is fine as trading Lumber is not for everyone but it has been one of my favourite Commodity trades over the past few years. The trends are strong, last a long time and when adopting a trend following strategy the asset suits my style of trading and personality. 

I attached today's 'daily' chart for Lumber below:

Lumber_20190612_18_42.png.ad70404dee93587f24aee2b458ec1c1e.png

Now if the US were to lower the interest rates and it is a 'BIG IF' as we do not know for sure that they will then it could present a lit match under Lumber! 🧨 I know this is dynamite but I could find an emoji of a lit match but it will do. Lumber is a more illiquid market than other Commodities so one must understand this. In fact I would go as far to say that it is very illiquid. But in my experience some of the illiquid markets create the best trends to trade. 

If the US lower interest rates then Lumber price action could get very interesting.

 

 

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Lumber up another 1158 points at the time of writing this post just after 5:00 pm UK time. It hit $37763 today. It seems until the US interest rate situation is clarified then it may provide some support for Lumber with potential upside.

When Lumber was in its bull run then if you staked the minimum £1 per point with around £3k margin then you could get £1k in a day. Of course not all days as some days you could lose big as well but if you were trading in the direction of the overall trend then you would win such big amounts per day more times than now. Now if you increased your leverage then you can begin to see how much you could earn in profits per day. 

What we do not know is how much legs if any this recent lumber move has. I have a feeling it is based on the potential of the US reducing interest rates but this is not a given and so this trade becomes very high risk in an illiquid market.

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Lumber is up yet another 1000 points + today.

It hit one of James Bond's favourite price points of $39007!

Lumber is showing a very strong breakout and as a result the price has gone above its 20, 50, 100 and 200 DMA as seen in the chart below which I have attached.

Lumber_20190614_16_49.png.3df2a27670319491194548384daebd41.png

Now if the US Federal Reserve announce via the media that it will not be lowering US interest rates, this move could reverse and Lumber could head back downwards. However there is pressure for the US to increase its homebuilding programme and whilst US indices are travelling upwards then it should remain positive for Lumber. should US indices take a tumble which is very possible then Lumber could be joining them. It is worth keeping an eye on the price of Bonds and Gold to assess this scenario. 

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