Lumber and Real Estate
"Stop the mindless wishing that things would be different. Rather than
wasting time and emotional and spiritual energy in explaining why we don't
have what we want, we can start to pursue other ways to get it."
- Greg Anderson, American Author of "The 22 Non-Negotiable Laws of Wellness"
Extracted from the August 9, 2005 market update.
For the last 6 years lumber prices were in nice up trend; sure we had some rather hard corrections but the long-term trend was up. However as of recent they have been trending down in the face of a red-hot housing market. Since lumber is one of the main components used to construct new houses one wonders if this market is not sensing a change in the real estate sector in the not to distant future. Watch the 255-258 ranges closely; a weekly break below this level could signify that we are not to far away from a top in the real estate markets. This will only apply to the red-hot zones in the beginning such as New York, Miami, Arizona, Las Vegas and Parts of California.
A note of warning a top does not mean we are going to crash and burn immediately. Usually what happens is that the sector/index/Etc pulls back and then rallies again but fails to put in a new high, lots of sideways action follows and then when everyone is feeling numb the huge correction suddenly starts.
Lumber prices topped out in July 2004 (over 1 year ago), experienced a sharp correction and then attempted to rally again but failed to take out their July 2004 highs. In contrast the Housing index (which is more or less a reflection of the housing markets) continued to rally and put in a new high in July exactly 12 months after the lumber market topped. This is a huge form of inter market negative divergence in action.
There are some possible benefits associated with this type of action.
Certain stocks will make for good shorts (in the housing sector) we are currently examining a few of the now. Gold could suddenly become the commodity of choice; the number one commodity so far has been real estate. The money that leaves this sector will eventually have to find a new home and even if a portion of it enters the Gold and Silver sector it could have far reaching implications as in huge price moves. Its been our experience that the biggest moves occur in stocks that look good on a Technical and psychological basis and ones that ones that most have not heard off; there are few such stocks in the Gold sector and when the time is right we will mention them.
"There are few people who are more often in the wrong than those who cannot endure to be so." - Francois De La Rochefoucauld, 1613-1680, French Classical Writer