If you would like an email sent to you when I update the blog please send an email with "subscribe" in the subject line to traderbob58@gmail.com. To be removed use "unsubscribe".

Search This Blog or Web

Tuesday, May 12, 2015

Daily update 5/12 Lumber

Global bond market selling is making stock markets nervous.

Its  kind of funny listening to the stock traders on TV all trying to figure out what is going on in the bond market.  I continue to think it is just a case of over doing it on the upside and correcting.  I am positive it has nothing to do with economic growth or inflation.  The futures gapped down big, but nobody was anxious to sell into that weakness.  That allowed the futures to float up and close the gap.  We ended up down a little bit, but nothing like where we started.  Breadth was -55% which was about in line with the damage done.  The new highs dropped down to 34 while new lows rose to 64.  Those numbers indicate we should be in pullback mode.  TRIN closed at 1.05 so once again no panic.  Volume was a little bit higher then yesterday, but still below the rally days last week.  That indicates sellers were not aggressive.  It probably did not take much buying to keep the market from imploding.  I believe most people are hanging on because they think we will break out on the upside.  This is option expiration week which has a strong upside bias.  It seems like a reasonable bet that we will test the highs some time this week.  The news flow may interfere with that though.  While people were not anxious to sell today into weakness it does not mean they won't sell tomorrow into strength.  Are money managers troubled by what is going on in the bond market?   I can't read people's minds unfortunately.  I am sure they are a bit confused, but whether that leads to selling I cannot say.

The futures gave us a red bar this morning.  However, there was no follow through and we ended the day back above the 18 SMA.  The -DI line hit 35 once again.  I cannot believe how many times that has happened lately.  This is really, really odd.  Bulls could say the bears are trying to break the market down, but are unable to achieve success.  Bears could say the smart money is trying to sell as much as they can without breaking the market down to get the best possible prices.  That is why we are not breaking out on the upside. 

We have gone from nearly unanimous we are going higher to somewhat polarized.  I am starting to see a few more calls for a top here.  I guess that means some bulls are jumping ship.   There is clearly some group responsible for keeping SPX above the 100 DMA.  It is also clear they are having a tougher and tougher time doing that.  Unlike the last couple of years new highs are getting very hard to come by.  The transports had a very bad day and are barely hanging in there.  If they don't get some real upside follow through soon they are going to break down.  That could be unsettling for some money managers. 

We are in never never land tonight.  We have done some technical damage in the short term, but not enough to say we will follow through on the downside.  Europe was down much more then we were.  They might have a bit of a bounce back in the morning that could give the U.S. a positive start.  If those markets continue down instead we could see more significant selling tomorrow.

Almost everybody has heard of copper referred to as doctor copper with a PHD in economics.  Lumber is much less talked about, but may be as good or even better.  Here are some interesting charts.


Over the last 20 years it appears lumber did a pretty good job as a leading indicator for GDP. 


This chart goes back even further and also shows a leading relationship to manufacturing data.  Here is a look at the last five years of lumber prices.

For some reason lumber has been falling off a cliff since the start of the year.  I don't know why.  I think this is yet another sign of caution for the U.S. economy.  Notice that big spike up in late 2012.  That was the hurricane Sandy affect.  The economy picked up considerably from the 2012 lull.  Lumber did a good job as a leading indicator.  If it is leading this time we will continue to see soft data.


No comments:


The information in this blog is provided for educational purposes only and is not to be construed as investment advice.