From the Desk of Ian Culley @IanCulley
Commodities are making moves.
Cotton is forming a bull flag following last week’s breakout. Coffee futures are coiling below a critical polarity zone. Cattle and hogs are running wild. Even Dr.Copper is perking up, posting positive returns over the trailing five days.
And don’t forget about cocoa futures as they continue to print fresh all-time highs.
With all this action heating up, let’s turn our attention to one of 2021’s most explosive markets…
Lumber.
Remember all the lumber memes on Twitter?
Dudes were posting their W’s sitting atop stacks of 2x4s and plywood. I’ll never forget it.
As a trader, I prefer to avoid lumber futures. It’s a thin market. But I can’t ignore the yearlong base forming on the daily chart:
Buyers are running into resistance at a shelf of former highs. A decisive close above 588.0 (Dec. closing high) flashes a buy signal.
Last year’s high stands as a logical initial target at approximately 650.0.
If lumber is in your wheelhouse, have a go. I won’t be taking this trade. It’s not for me.
Instead, I’m more interested in the information lumber futures provide.
Zooming out on a monthly chart…
Lumber futures are finding support at a former multi-decade resistance level after skyrocketing to new all-time highs in 2021.
I view the 450 level as the lower bounds of a new generational range for lumber.
Other commodities will follow suit, breaking to new all-time highs while forming ranges that will define the coming decades.
It’s the type of price discovery that accompanies commodity supercycles.
On the other hand, lumber below 450 raises serious doubts regarding the current commodity bull run. It also wouldn’t support a healthy demand for economic-sensitive homebuilders.
There’s plenty to gain from tracking lumber’s next move, whether you choose to trade it or not.
But if you’re simply looking for a vehicle to express a bullish thesis for lumber, I have a setup for you in today’s commodity Trade of the Week…
COT Heatmap Highlights
- Commercial hedgers post another record-long position in corn.
- Commercials’ long exposure to the Japanese yen falls within six percent of a new three-year extreme.
- Commercial notch yet another record-long position for palladium, adding more than 2,000 contracts last week.
Click here to download the All Star Charts COT Heatmap.
Trade of the Week
Today, we’re outlining Suzano S.A. $SUZ, a $14.5B Brazilian paper and pulp company:
SUZ is carving out a multi-year base below its former ‘21 high. We have an opportunity to build a position before price runs all the way back to those former highs.
I like buying a break above last October’s high of 11.60. It coincides with a key retracement level and marks the upper bounds of a multi-month range.
A decisive breakout above that level sets our initial target at 14.00 and our secondary objective at a new all-time high of 18.25.
Keep in mind that volatility will likely increase as Suzano is scheduled to release an earnings statement next week.
Thanks for reading.
And be sure to download this week’s Commodity Report below!
Allstarcharts Team
