In both the lumber and stock markets, there are more disruptions coming in 2019. The immediate influences of government shutdown, mass exodus from stocks, on-going trade war, volatile oil market, fight to suppress interest rates, President Trump’s legal issues, and global economic and political unrest are enough to cause investors of both markets to play cautiously; more cautiously than any time since 2009.
That caution leaves both markets vulnerable to reactions and continued volatility and proof that we humans create what we speak. The more we talk about trade wars, higher interest rates, recessions and conflict in the Capitol, the more we create it. The more we talk about “The Wall” the more likely there will be one.
Regardless, even with the After-Christmas stock market rally, from a technical analysis perspective, stocks and lumber have further downside potential. Do either have enough reserve bearish energy to fight off the reloading bulls? We’ll know by the time you read this.
These current conditions are creating a coiling effect on lumber price volatility, specifically smaller moves in both directions until breaking out of its narrowing trading range.
Now then, let’s take a look at those downside targets and how they are identified using a simple trend line. First, we draw the trend line and currently see two very strong pull-backs in bull market corrections. These are not confirmed bear markets.
On the charts, we clearly see the untested bull market trend line. Then, starting at the right side of each chart, look left for obvious areas resistance and support and see where they fall on the trend line.
The DJIA analysis suggests 18,500 area will find major investment. Lumber suggests the $275 area as a prime buying target.
Strictly from a technical analysis, I expect that by the time you read this, SPF-W 2x4’s will be selling for less than $320 and the DJIA will be back under 23,000.
Both have been the victim of irrational over-reactions to market disruptions. As those disruptions dissolved, the markets realized what was being covered up...excessive valuations. Both markets are making historical retreats in search of value.
Therein lies the dilemma...determining value. The markets have no way of defending against price manipulations resulting from orchestrated disruptions. Both are still in long-term bull market corrections with 15-20% more downside before hitting the trend line.
A veteran lumberman, Matt Layman publishes Layman’s Lumber Guide, the weekly forecasts and buying advisories that help component manufacturers save money on lumber purchases every day. You can reach Matt at 336-516-6684 or firstname.lastname@example.org.
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