Lumber Long View

There are several sets of lines on the bar chart, the most salient is the long support line since 2009 which should hold prices at the 350 level. The thinking goes that periodically prices must test these lines, and that Red/Green triangle is an interesting possibility. At first glance it appears to be a BULLISH continuation pattern, which if prices break above the Green line would imply well over a thousand point jump (the size of the triangle from its breakout point, at lets say 900, would take prices slightly above that supply chain high, at around 1700.

The other possibility is that the triangle breaks down, which is the current direction, and at 500 minus a thousand points, they are giving the stuff away. There is hopefully some help in that thin purple line which reflects the interim price action. If we break the purple line the red line is more possible, if the line holds and prices rally back toward the Green, so much the better for the bullish outcome.

Now when you look at a chart of a fungible commodity like this, the fuel in the engine that is the US housing market, you ask, what happens to create the outcome. I think you can say, Green line, inflation proves to be persistent, including wage and employment issues. Housing is a labor intensive market and I don’t really know if the Great Resignation has hit that labor market yet? Are carpenters laying down their hammers? In the 1970s which is frequently quoted as the model for the current inflation, every able bodied man or woman went to work in construction, or flipping houses. Somehow I don’t see that now. I also see that with new tools the physical stamina to hold a sixteen ounce hammer all day is no longer necessary.

The downside is a recession, which should hold prices at the thick support line. If we break that line the recession might be a lot worse than that. The three catalysts for economic growth give support to the bullish outcome, lack of infrastructure spending, expansion of the money supply, repatriating offshored jobs and industry. The risks to that would be liquidity issues.

The charts are telling you two things, the lower chart, the point and figure is a bit more negative. Bearish triangles often set up Bear markets, and at 700, the price of Lumber could drop in half to find support. From there anyone’s guess. Maybe some new high tech polymer with 3D printing will replace the old frame style house? EVs didn’t ruin the fossil fuel or energy market, and that brings up my last thought. The price of oil is breaking higher from a consolidation, and that predicts higher prices, and higher prices in energy tend to lift all boats, or commodities.

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