The precipitous decline in lumber prices from the 2018 peak presaged the huge decline in equities in the fourth quarter, while the subsequent rebound also foreshadowed the rebound in equities at the beginning of this year. Therefore, it is understandable why lumber’s fall year-to-date has many concerned that equities, which have consistently lagged lumber prices, are bound for a similar pullback in the not-too-distant future.
In what has become increasingly common in my Fibonacci analysis, I have used the secondary highs from the 2013 peak, not the primary high, as the starting point to initiate my Fibonacci retracement/extension lines. (For more information on the thesis behind this method, please refer to my article on Fibonacci best practices.)
Based on this method, lumber has honored the key Fibonacci levels extremely well, stopping on a dime right at the 261.8% peak, while testing and retesting all key levels up and the down the journey.
Of particular note are the 38.2% and 50% retracement lines, which now each intersect with long term trend lines dating back to the early 2009 lows. There is tremendous market memory in this zone of support between ~$275-$300 level. This is an extremely important area.
Lumber prices have now tested the area twice successfully and are trading above the $340 level. The direction it takes from here could be a signal of what to expect from the broader market over the coming months. While $275-$300 is the key zone to watch on the downside, I would look to get bullish if lumber definitively breaks above the $450 level.
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Paperback: 128 pages
Author: Shelley Allen, M.A.Ed.
Publisher: Fibonacci Inc.; 1st edition (2019)