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 LUMBER NEARS MAJOR UPSIDE BREAKOUT

John Murphy | 

Lumber prices surged Wednesday after the devastation on the east coast. [I live in New Jersey which was hit especially hard]. There's a lot of rebuilding that's going to be needed as a result And that's going to require a lot of lumber. Lumber has in fact been rising over the last year as the housing industry has recovered. The chart below shows a positive correlation between the price of lumber and Dow Jones Home Construction iShares (green area) over the last four years. The homebuilding index bottomed last October and has since risen to the highest level in four years. That also began a strong rally in the price of lumber (see arrows). The chart also shows lumber on the verge of breaking out of a large "ascending triangle" pattern. [An ascending pattern is identified by a flat upper line and a rising lower line and is usually a bullish pattern]. The improvement in housing and this week's east coast damage should combine to make the price of lumber a lot more expensive. One way to participate in that rally is to buy lumber futures. Another way is to buy stocks tied to lumber.

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John Murphy
About the author: is the Chief Technical Analyst at StockCharts.com, an renowned author in the investment field and a former technical analyst for CNBC. With over 40 years of market experience, he is the author of numerous popular works including Technical Analysis of the Financial Markets and Trading with Intermarket Analysis. John's timely market commentary and expert analysis is available exclusively for StockCharts Members through his Market Message blog.
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