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Creating opportunities that stand the test of time. In focus: Wood :: Elliott Wave International

The 65 percent sell-off in lumber since March was not a wild card. It was written in the Elliott Wave Charts!

by Nico Isaac
Updated: 08/05/2022

Like so many people during the pandemic, I’ve gone from 1-click shopper to do-it-yourselfer, using the extra time and income deducted to teach myself things I previously paid others to do. Such as:

Transforming the privet jungle that was my backyard into a perennial vegetable garden.

I am learning to bake my own bread from a sourdough starter and to make my own fig jam.

And my most valuable achievement was building a greenhouse together from old barn wood, PVC pipes and plastic sheets. But truth be told, this home was left in tatters on its first attempt after a wind-gusty rainstorm lifted the wooden frame off the ground and pulled the plastic sheeting from the sides. Let’s call it the “before” picture:

The problem: Our foundation was not stable enough. So we got out there first thing in the morning and started all over again, this time securing the support beams into the ground with rebar. Another storm hit that night, only this time the greenhouse stayed intact. See “after” picture:

8422Greenhouse

As annoying as I am, I’ve wondered about the basis of mainstream market analysis, which is built on the assumption that “fundamentals” or news events drive price action. In the end, will this foundation really withstand the strong winds of reality?

Take the wood market. At the beginning of 2022, timber prices were on a high, rising to their highest level in over a year. According to the experts at Popular News Movement Markets, the timber rally was aided by several bullish factors, including:

An ongoing shipping crisis in the construction sector, a lack of transport personnel, wildfires and mudslides in Canada, crop diseases caused by the mountain pine beetle and ongoing logistics bottlenecks caused by Covid 19.

An industry blogger wrote on February 16:

“Several factors … have pushed demand for new housing to levels not seen since the mid-2000s.

The trends that are driving up timber prices are not going away anytime soon. The dispute between the United States and Canada over timber tariffs dates back to the early 1980s. New housing permits remain near their highest level since 2006, while the housing stock is historically low.

Expect high wood prices for the foreseeable future…futures markets are suggesting that wood is here to stay over $1,000 per thousand board feet by September 2022.”

Meanwhile, on Feb. 22, Fortune pinned a new “wooden bubble” in which prices “are up 227% since August.” While the piece warned of an inevitable pop, it also acknowledged that “the timing of when a correction comes is a wild card.”

That wild card was dealt, so to speak, a week later, as lumber prices peaked on March 4th and ushered in the mighty 65% ​​sell-off to yearly lows on August 4th.

In turn, the bullish framework for rising lumber prices has truly been torn apart by the strong gusts of reality. It happened for the same reason as my greenhouse: the foundation for this “fundamental” framework is not stable.

So let’s go back to the drawing board and start over, using a different set of “inserts” so to speak; namely Elliott wave analysis. Here, on March 4th, Our Daily Commodity Junctures editor Jeffrey Kennedy posted this wood chart where he identified the rally from the August low as a completed wave B rally. Therefore, the next significant move would push lumber prices back down:

3422 WOOD

And this next chart shows how the bearish timber frame held up (or fell in this case) against the elements:

wood_nico

Now the same mainstream pundits are using the same outside tools to explain why lumber prices are falling. tells Business Insider on June 9:

“Timber prices can’t take a break…

“The orderly decline in lumber prices, which have fallen in nine of the last 11 weeks, comes as home mortgage demand falls to a 22-year low. This weakness was caused by a rapid increase in mortgage rates, which rose more than 5% earlier this year and have not fallen lower.”

What a perfect reason to explain why a market turned – with hindsight.

However, if you want to use a model that prepares you for turning points before they happen, our Commodity Junctures Service offers in-depth coverage of potential short and long-term trend developments in the world’s leading soft goods, grain, meat and energy markets.

Of course, those who use futures to profit from these trends must always remember that futures trading involves immense risk and Elliott Wave interpretations of price patterns and technical indicators are for educational purposes only. Had to work that in there, sorry.

However, our Commodity Junctures service is where education meets action – try it and see for yourself.

From Lumber to Livestock: A Permanent Opportunity to Build!

New or experienced, long-distance or day speculator – Commodity Junctures Service is an answer to every investor’s most pressing questions:

“How do I spot opportunities in the price charts of the markets I follow before they become old news?”

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