This is the second article from my weekend road trip through the mountains between Alberta and BC. The first article can be found here. Canadian Transportation Companies Start My Highway Tour.
After leaving the Windermere area, we drove past many logging trucks. There are multiple lumber sawmills and pulp mills along the route. We drove past Canfor, Norbord, and Weyerhauser that you could see from the road. There were also other mills set back from the highway, so I didn't catch the company names. However, the purpose of this article is to get a current state of the different industries, so let me roll through all the Canadian Forestry charts.
Starting with Canfor Corporation (CFP.TO), we can yell "TIMBER-R-R". This chart has been falling for a while. The SCTR is low, the slope of the 40 WMA is down sloping significantly (just above the red line) and the MACD is very negative and it does not appear ready to start moving higher. There is one small positive and that would be the higher low on the MACD compared to the lower low on price in late June.
Canfor has a separate pulp company. Canfor Pulp Products (CFX.TO) has a better chart but the trend is still down. The SCTR is at 10, the price is well below the 40 WMA, and there has been some selling. The MACD on the Canfor Pulp company below looks very similar to the Canfor chart above. This stock goes on some runs, but it definitely does not trend well.
Next in line is Conifex Timber (CFF.TO). The SCTR has moved above 75, so that's a positive. However, it looks like it really needs to stay above the 10 WMA to maintain up trends. However, the MACD looks like it has trouble staying in positive territory above zero and it is at a level where it would roll over, based on history. So the price rally has been impressive, but I would not be comfortable trying to buy this here.
Interfor Corp. (IFP.TO) has an SCTR at 39. I personally don't like SCTR's between 25-75 because they don't seem to trend well. It wouldn't take much for Interfor to break above the trend line. The MACD is still negative but it has crossed above the signal line.
Western Forest Products (WEF.TO) is looking very weak at this point. The SCTR is at 17 and the red uptrend line on price looks to be breaking and the MACD is just about to drop below zero. Not much to like based on the current chart pattern.
West Fraser Timber Co. (WFT.TO) looks bad as well. The SCTR is a whopping 3.6 which is horrific. The price has dropped in half from it's 2015 high and the MACD is pointing down with no real optimism to be found. Yecch!
Looking at the companies listed under East Coast Forestry, that is where we find Norbord. So I might as well look at the charts of the 4 East Coast companies.
Acadian Timber (ADN.TO) has had a stronger chart that other western companies, but the SCTR is still weak at 30. While the SCTR has turned up, at this point we need to see the trend improve. On the price plot, we can see the price is trying to get back above a flat 40 WMA. When we look at the MACD, this chart has spent more time above zero. However, it is currently negative. It is about to fire off a MACD crossover buy signal. Based on the health of the industry above, it does not seem to be an important time to jump on this log boom.
The next chart is Domtar (UFS.TO). This stock adds to the list of stocks with an SCTR under 10. The very weak SCTR is a problem. The price has had declining tops for 2 years and looks set to test the 5-year uptrend line. With the MACD recently turning negative, it looks like the stock will test the five-year trend. Based on the industry weakness on these charts, this might not hold the trendline.
Norbord (OSB.TO) is a plant we drove past on our road tour. While the chart is not breaking down, it is only trading in a range. With declining volume and the MACD just rolling over to a sell signal by moving below its signal line, this will probably test lower levels. It has one positive of being above the horizontal 40 WMA but the price action did just break the uptrend line shown in red. The MACD is also at a place it commonly rolls over from, so that's a problem. I have illustrated that with a trend line mapping the MACD highs on the MACD. The declining volume does not excite me that this rally will hold.
Resolute Forest Products (RFP.TO) has dropped by 75% since the early part of 2015. The low SCTR for Resolute continues to be a trait across the forestry industry. The stock is trying to make higher lows and is coming up to test the red trendline. The 40 WMA has a serious downslope. The MACD is on a buy signal but it is still below the zero line. Until this can break through the red trend, there is no reason to own it here.
Because Weyerhauser (WY) was one of the plants we drove by, we'll cover that stock here. Weyerhauser has a stronger SCTR at 68. We can see a basing head/shoulders structure with a neckline at $32. The stock is above both moving averages and the MACD looks to be turning up to give a bullish buy signal while above zero.
The Canadian forestry industry as a group is really beaten up. The Weyerhauser chart looks better. The fact that the complete group looks to be in despair suggests a technical bounce might be possible. At this point, there is no reason to rush into the ownership position.
I'll continue the review of these different sectors later on in the week. I'll also cover this off on the webinars over the next few weeks as well. The Commodities Countdown Webinar 2016-07-14 is the next one, so I hope you can join me. Click on the link to register. If not, you can check the webinar archives found here. StockCharts Webinar archives. You can also follow me on twitter @Schnellinvestor and LinkedIn. If you would like to receive the rest of this series in your email, please click on the subscribe button below.
Good trading,
Greg Schnell, CMT, MFTA
