CFDs are complex instruments. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money. CFDs are complex instruments. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

Lumber bulls start to emerge, with seasonality signalling potential strong Q4

Lumber spike highlights potential for a bullish resurgence, with seasonality pointing towards a strong Q4.

Lumber finally starts to turn a corner

Lumber has seen huge volatility over the course of the Covid-19 pandemic, with an initial 45% decline, followed up by a whopping 564% bull run that ended in May. The past few months have been less welcome for bulls, with the price of Lumber losing 73% in little more than three months.

However, as highlighted a month ago, this pullback does look likely to represent a potential buying opportunity before long. The long-term picture remains bullish despite this recent collapse, with the trend of higher lows firmly intact. A break below $257 would be required for that to occur. With that in mind, we are looking for a bullish reversal signal to come into play between here and $257.

With that in mind, the recent spike from $460 looks like a particularly interesting possible reversal point.

10% rise signals potential return of the bulls

The daily chart highlights how Lumber has broken from its recent downtrend, with the price pushing up through trendline resistance.

However, hurdles do lie up ahead as the trend of lower highs remains unbroken. A rise through the $732 level would bring that bullish break, yet short-term upside still looks likely as we push towards near-term resistance of $628 and $667.

Seasonality highlights potential for Q4 rebound

Once again, it is worthwhile noting the seasonality chart for Lumber, with the fourth quarter (Q4) typically representing the source of a final end of year push higher.

The chart below highlights that we often see major volatility in the second half of the year when looking at the past 20 years. That typically takes the form of quarter three (Q3) weakness and a Q4 recovery, signalling the potential for us to start building a base over the course of September for an ultimate push higher later in the year.

The ability to break $732 will be key in determining whether such a move will happen sooner or later.

The statistical breakdown does provide some clues as to how that chart is constructed. Despite the strong start this month, September is statistically the weakest month over the past 20 years. An average return of -7.8% comes with a win rate of just 25%.

If we were to maintain this recovery from here on in, it would smash the record 11% September gain seen in 2010. It is worthwhile noting that the particularly damaging -34% move seen last year will have heavily influenced the average. Nonetheless, what we are seeing is a move towards a particularly strong three-month period to close out the year, with November seeing the most reliable month given the 75% gain frequency rate.

November has also seen the least downside, with the 2017 decline of -6.7% representing the worst November over the course of two decades.

With this in mind, there are still some question marks over whether the recovery comes into play here or whether this is simply the opening salvo in a bullish turnaround that could gather momentum towards the back end of the year.

In any case, this latest period of weakness does look like something that will ultimately resolve with another push higher, yet key hurdles remain up ahead before we can gain strong confidence that we have bottomed out.


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Speculate on commodities

Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1

  • Wide range of popular and niche metals, energies and softs
  • Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
  • View continuous charting, backdated for up to five years

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired
liveprices.javascriptrequired

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.