Lumber Futures Complete 2018 Reversal
Dr. Duru | Aug 03, 2018 06:54AM ET
The National Association of Home Builders (NAHB) consistently complains about rising construction costs , so I have taken for granted that lumber prices remain an issue.
Lumber Futures actually peaked in mid-May after a tremendous 2018 breakout and run-up. The return back down was a lot faster than the ride up. Earlier this week, lumber futures reversed all their 2018 gains.
Lumber futures reversed all their 2018 gains in just 2 1/2 months of selling.
The weekly view really paints a stark picture of the current sell-off.
The steep sell-off in lumber futures brought a near 3-year uptrend to a definitive end.
The sell-off begs obvious questions. Are plunging lumber prices indicative of a housing/construction market coming to a screeching halt? The drop is certainly consistent with a two quarter contraction in private residential fixed investment . Can this drop in prices help boost profit margins for home builders? Assuming sales momentum continues, builders should directly benefit given adjustments they have made to the previous period of rising costs.
I will be watching lumber prices a lot more closely. A LOT hangs in the balance given the iShares US Home Construction ETF ITB is struggling at its own 2018 low. (Notice the lack of correlation between lumber and home builders given the peak in lumber came FOUR months after the stocks of most builders).
The iShares US Home Construction ETF (ITB) flamed out in January and has struggled ever since then.
Be careful out there!
Full disclosure: long ITB call options
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.