Okay, no one laugh. I'm very new to commodities and YES, I'm thinking of dipping my toe into the thinnest of thinly traded markets: LUMBER. Nothing major mind you. I'm a strict ONE CONTRACT investor. I would appreciate any comments about: 1. The price action over the last 2 weeks (that SPIKE and then that sharp reversal down). What causes such a wild gyration? This happened out of nowhere when you compare that price action with the past year or so? 2. "Everyone says" that you should trade the contract that is the nearest to expiration; the most actively traded contract. BUT, why would anyone trade the back month contracts. There's a lot of action in Nov Lumber! And also 2009! Who participates in these way-future markets? And why? 3. Let's just say HOUSING WILL CONTINUE TO TANK FOR THE NEXT THREE YEARS. What other factors drive the lumber market? All comments, suggestions, jokes and lessons are invited and welcome! Zooming in on recent price action Here's JULY 2008 Recent price action Thanks to all! B
1) The quick rally can be characterized as short-covering. The quick decline can be characterized as agressive short-selling. The general interpretation would be that the market is still jittery. It's also indicative of more "hot money" creeping into a market that is deemed to be illiquid. The "good" thing about that is the market becomes more technically-driven which creates more trading opportunities instead of waiting for news releases to be made to gauge fundamentals. 2) As a shorter-term speculator, you should trade the most active contract. Deferred months are best left to floor traders, commercial users and spreaders who can hold positions for longer periods of time. 3) New construction can continue. Maybe not in the USA but maybe in Canada. Lumber can be kept and diverted north of the border to support and drive the market.
I own a JULY lumber contract and plan on adding as this market goes up. That spike was caused when canadian company canfor closed a bunch of saw mills.
if you are really ballsy man you could do an intermarket spread. Buy 09 lumber and sell some 09 bellies at Market! Now thats the shit that nightmares are made of lol