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"Timber!" - Short Trade in Random Length Lumber


Random Length Lumber has been in an overall downtrend since the end of last year. A strong rally in June made it appear the price trajectory had changed, but the overall trend and recent selling pressure indicates otherwise.

Figure 1. Random Length Lumber Daily Chart (LBS - September Contract)

lumber-1.jpg

The June rally tapered off in early July, but has been followed by a shallow pullback, a small rally and then strong selling on July 24. The price action sets up a potential trading opportunity.

By entering short near current levels (325 to 330 area) a stop can be placed just above 336.2. The initial target for the downside move is between 300 and 297--just above the June low. The area resulted in a sharp price reversal higher and should be respected by taking full or at least partial profits.

If the downtrend continues though (below 293.1), it opens up the gates for a greater reward-to-risk ratio on the trade.

The June rally can't be completely written off. Watch for a move back above the 336 to signal potential strength, and a rally above the 342 to signal another wave higher to 360+.

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