Due largely to a variety of meaningful COVID-19-related supply disruptions, the price of lumber has delivered its most aggressive rate of gains in history since bottoming in March. Late-stage advances often take on parabolic characteristics in commodities trading. In the case of lumber, bull cycles tend to top either near 50% or 80% above the rolling 52-week price average. The current up-cycle saw the continuous lumber contract stretch to the high-end of this range (i.e., 80% above).
Luckily, the CFTC puts out its weekly COT (Commitments of Traders) report each Friday, which allows us to gauge the positioning of commercial hedgers ("smart money"), large speculators (trend followers) and small speculators ("dumb money) as of the preceding Tuesday. Using this information in its raw state to find major turning points often proves futile. However, when proprietary methods that focus heavily on commercial positioning are employed, the signals prove more timely.
Shown below are the latest results from our weekly analysis of COT data. When taken in conjunction with the absolute price extreme discussed above, the case for lumber prices to forge a meaningful tactical top and possibly transition into a secular top over the coming 4-week window gains significant credence.
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