This commodity is setting up for a big move



Lumber, as seen on the continuous futures contract chart above, has been forming a giant triangle since 2013. To illustrate the significance of this formation, you will recall the triangle I had been watching oil form over the past 2 years. I had blogged a few times on this formation, suggesting that readers watch oil for a breakout. The rule of thumb with symmetrical triangles is that you do not trade them until they break out. A break through the bottom of a triangle means a shorting opportunity, and a break through the upper side suggests a strong upside potential. Oil broke to the downside, and proceeded to not only reach, but exceed my original downside target (green line) – see chart below.




The symmetrical triangle forming on lumber should be watched carefully. A breakout on either side will likely result in an explosive move in the direction of the breakout. A breakout through $350 on the upside, and $315 on the downside might suggest a break from the current triangle consolidation. Should such a move occur, a trader could consider a long or short on a lumber stock, or on an ETF. The only two ETF’s that I am aware of that might follow the commodity to at least some degree are WOOD-US and CUT-US. They hold timber related stocks. The charts of these ETF’s do not replicate that of lumber – but there still will be some influence by the underlying commodity. WOOD needs to break $63 for a potential upside trade. It might be of interest to some readers that seasonality can be positive for lumber from October through to February – although not without its hiccups. seasonal expert Don Vialoux ( has noted this tendency in the past. So, if its going to move to the upside, this would be an added factor in its favour.




Trading within a triangle prior to a breakout such as lumber is – is usually a bad idea. My advice remains to watch the lumber chart, and look for a breakout as a potential signal for a trade.
Free Technical Analysis Seminar in Markham with Keith Richards

Markham Village Library: 6031 Hwy. 7 East, Markham, Ontario,   L3P 3A7 – Wednesday, November 26, 2014, 7:00 PM

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