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Death Cross on Lumber Chart Signals Decline: Technical Analysis

Lumber hasn’t traded below $300 since mid-October. Photographer: Brett Gundlock/Bloomberg
Lumber hasn’t traded below $300 since mid-October. Photographer: Brett Gundlock/Bloomberg

May 15 (Bloomberg) -- Lumber prices, down 13 percent this year, may extend the slump to the lowest since October after moving averages formed a “death cross,” according to technical analysis by Paul Kavanaugh at FuturePath Trading LLC.

The attached chart shows that on May 9, lumber’s 50-day moving average fell below the 100-day measure, often considered a bearish indicator to traders who follow price patterns. Yesterday, lumber futures for July delivery on the Chicago Mercantile Exchange tumbled 2.9 percent, the most in eight months. The price settled at $327.70 per 1,000 board feet, below the $329.10 close on Nov. 27, a key support, Kavanaugh said.

“Lumber may be below $300 by the end of the month,” Kavanaugh, the director of business development at FuturePath in Chicago, said in a telephone interview. “The cross of the 50-and 100-day moving averages is validating the trend lower.”

The commodity hasn’t traded below $300 since mid-October. Futures have dropped this year as signs of slowing economic growth in China fueled concern that demand for materials ranging from aluminum to zinc will ebb. Last month, the Standard & Poor’s GSCI Spot Index of 24 raw materials touched the lowest since July.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes.

To contact the reporter on this story: Joe Richter in New York at jrichter1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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