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Chart of the Day
GMTT / Chart of the Day / Crude (JUN) / May 4, 2021
Crude (JUN)
The market is bullish Crude since it broke out above 65.00. While we saw a few attempts before it did finally broke. This morning Crude is trading at 65.70 which was our next upside target. Crude gives a next upside target of 67.30 but it is now trading near its projected high. We have not been long Crude but tried a few times to short it. The reason is that it’s overdue a correction and we still have a lower target of around 61 that has not been tested yet. Enough reason to stay cautious. We suggested this morning to short Crude again below 64.90 with a buy stop at 65.70. Since that signal went out Crude tested 65.70 and that becomes the resistance for any short position. Nat Gas (JUN) not shown as a chart is also near a projected high and here, we want to go short below 2.86 with a tight buy stop at 2.94.
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Our View
Got Wood?
Anyone who’s looking to remodel or build a house will tell you what they are experiencing with lumber prices. If you pull up a chart of lumber, it’s absolutely flooring (and I’m not talking about Lumber Liquidators here).
From the March low, lumber futures — /LB — are up more than 90%. From the January low, prices are up 152% and from the late-October low, prices have more than tripled, with a 226% appreciation.
The lumber market has been prone to volatility in the past. But this type of move and the gyrations we’ve seen in the past 12 months have been unprecedented. Aside from having major impacts on homebuilders and contractors, one could argue it’s adding even more demand to a frenzied housing market that’s short on supply.
Who wants to build when lumber prices — which climbed almost 50% in April alone — are skyrocketing like this? One report says the average new-build price has increased by $36,000 as a result of lumber prices.
It’s not just inflation, either.
While there is certainly an underlying reflation component to consider as the economy reopens, the lumber market has a more specific problem which is mostly tied to supply-chain issues. While robust demand does not help, prices were already on the rise last year due to tariffs. But after production shut down due to Covid-19, supply hasn’t been able to catch up. Of course, most of that supply is imported and hasn’t helped the situation. That’s left the market in the same situation as any other asset when supply can’t meet demand.
Our view, not in a million years would I think I would be writing about lumber in the Opening Print but lumber has exploded, up almost 4x in a year. I remember the ‘lumber pit’ on the CME and we used to chuckle as we walked by it but this is no job. Only 120 LBN21:CME contracts traded, it’s a roach motel, you can get in but you can’t get out. Our lean, it’s 8:45 and the ESM is trading 4178. The ES looks weak but I have a buy level in the NQ at 13,710. I think we see a bounce, I just don’t if it’s going to hold when it does rip.
As we all know, there’s no crystal ball when it comes to trading stocks, options or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk free for 30 days.
Danny Riley is a 39-year veteran of the CME trading floor. He ran one of the largest S&P desks on the floor of the CME Group since 1985.
As always, please use protective buy and sell stops when trading futures and options.
Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Decisions to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
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