Tags: lumber | home | builder | stocks

Lumber Market Says Next Housing Top in Sight

By    |   Friday, 24 May 2013 07:40 AM

Supply chains offer valuable insights into the state of the market. For example, many analysts believe Apple has a new product coming later this year because their contractors in China are hiring. This idea allows investors to identify industry trends that could help generate profits.

Right now, lumber futures have entered a bear market and that could be warning of a downturn in home building.

Orders for lumber are placed before homes are built. When orders for lumber or any commodity fall, prices generally slump for that commodity. Since March, lumber prices have fallen by 25 percent. A decline of 20 percent is often used to define a bear market.

Lumber price peaks and troughs have led trend reversals in the stocks of homebuilders in the past. Home building stocks have been among the leaders in this bull market, but the fundamentals are no longer pointing to gains in this sector.

Stock market investors should consider selling any homebuilder stocks they own. Short-term traders may want to consider put options on homebuilder exchange-traded funds. At-the-money puts expiring in January 2014 are reasonably priced.

Trends in home prices also reflect the ups and downs of the lumber market. On average, lumber prices lead home prices by about a year. This indicator says that home prices should continue moving higher through the end of 2013 and then turn down in the first months of 2014.

History never repeats itself exactly, but in general terms we see the same historical patterns repeated over and over again in the markets. There is a logical relationship between lumber, home building stocks and home prices.

If we see the same pattern unfold as we have in the past, now is the time to act to avoid losses.

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MichaelCarr
Supply chains offer valuable insights into the state of the market. For example, many analysts believe Apple has a new product coming later this year because their contractors in China are hiring. This idea allows investors to identify industry trends that could help generate profits.
lumber,home,builder,stocks
291
2013-40-24
Friday, 24 May 2013 07:40 AM
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