As many commodities have continued to climb impressively, one stands out like a sore thumb to me: lumber. What can the price of lumber mean, or more importantly, do for you?

Before diving into the lumber market, let’s review the current state of the S&P 500.

There weren’t too many surprises in the S&P 500 in Tuesday's cash session, as the $SPX settled practically flat on the day. $SPX is at the higher end of its recent range, as discussed in yesterday’s publication. It will most likely require a catalyst of some sort to push through higher or break lower from here. Will Thursday’s CPI data be the catalyst? I think it could be.

After last month’s monster CPI print, traders are on their tippy-toes waiting for this data release. It is important to know that the $SPX was already down for two consecutive sessions when last month’s CPI print came out. It then sold off further intraday (May 12) and closed sharply lower.

Figure 1 - $SPX S&P 500 Index April 28, 2021 - June 8, 2021, Hourly Candles Source tradingview.com

It seems like everyone is talking about inflation, and with good reason! It is real and is impacting lives. All eyes are peeled for Thursday's CPI data release.

Speaking of inflation, have you noticed the price of lumber lately? We all know that commodities are much higher and that homes are priced ridiculously high across most of the US. What amazes me is the demand and ability for borrowing at such high prices...but that is a subject for another time.

Check out this long-term chart of Lumber Futures (front-month):

Figure 2 - LBS1! Random Length Lumber Futures Continuous Contract December 1972 - June 2021 Monthly Candles Source tradingview.com

That’s a 48-Year chart for lumber, folks. Again, that is a chart for lumber. There is no Bitcoin or Dogecoin inside the lumber. There isn't any 24K gold hiding in there. It is wood, and it managed to go ~ 8X from the pandemic lows.

This monster clearly decided that the average prices over nearly half a century just didn’t apply anymore. What a move!

I want to put this in big bold letters here: I strongly suggest against trading in Lumber Futures. They can be illiquid, and experience many limit up and limit down days. You could be stuck in a losing position and not be able to get out. The only traders in Lumber futures should be hedgers that are in the wood business or deep pocket institutional traders that have real money to burn. Futures trading entails unlimited risk. I am sure that many fortunes have been made, and many more have been lost during this insane lumber market. Being on the wrong side of a futures market like that can be brutal.

Now that we have that out of the way, is there another way to participate in this market?

Yes, there is. But first, have you been following along with the GRID ETF trade that was covered in the May 6, 2021 publication? We were targeting an idea buy range of $86.91 - $88.17.

Figure 3 - First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) Daily Candles January 7, 2021 - June 8, 2021. Source tradingview.com

Given the infrastructure bill theme that is currently in play in the US, the $100 Billion aimed at upgrading and building out the nation's electrical grid, and the fact that the new administration is still in its very early days, I don’t think it is too late to get aboard. I like pullbacks, and we will be covering them.

Let’s get back to lumber. Is there any opportunity left for a potential trade? After researching ways to get exposure, the WOOD iShares Global Timber & Forestry ETF came onto my radar.

Figure 4 - iShares Global Timber & Forestry ETF (WOOD) Daily Candles May 25, 2018 - June 8, 2021. Source stockcharts.com

Check out the WOOD ETF details here.

Here we can see the recent high made just under the psychologically important level of $100 on May 10, 2021. There has been a nice pullback since then – about 11%. However, what really catches my eye is the old high closing level from June 6, 2018, of $79.07 and the 200-day moving average (currently $79.06).

These two levels are practically identical at the moment, and I love seeing this; a confluence of indicators.

For long-term fibonacci levels, we have $84.85 (23.6%) and $76.11 (38.2%).

Notice the daily RSI at 37 approaching oversold levels. Can we get to the 200-day moving average? For now, let’s see how Thursday’s CPI print looks. A below expectations print could send commodities lower as some of the froth comes off the top. If we can get to a 20% pullback from the high of $98.98 ($79.18), we could have an opportunity on our hands. The key is to be ready before it happens.

For now, I am looking at a buy idea zone between $79.07 and the 200-day moving average of the same level. Remember, moving averages change every day! So, if you are following this one, keep an eye on the 200-day moving average.

As time unfolds, we will continue to monitor the key levels and price action.

To sum up the current viewpoint and opinion:

I have BUY opinions for:

• iShares Trust Russell 2000 ETF (IWM) for an index reconstitution trade. At this time, I would be looking to be long and then exiting upon the actual reconstituted index going into place on June 28, 2021. Buy the rumor, sell the fact type of trade. Buy Pullbacks. For equity-bearish folks, see the IWM/SPY spread idea in the May 27th publication. Always use a stop loss level that caters to your individual risk tolerance.
• Update: 06/09: The IWM tacked on another 1.06% in yesterday’s session. Opinion: stay long. I think there is still time to get on board here. See the May 27th publication.
• Defiance Quantum ETF (QTUM) between $44.00 - $47.25. Update 05/27: I will now raise my buy idea zone upwards to $47.60. Look for pullbacks for entries. Update 06/09: QTUM closed at $48.81 in yesterday’s session. Always use a stop loss level that caters to your individual risk tolerance.
• Amplify Transformational Data Sharing ETF (BLOK) between $37.68 - $37.91. BLOK has a history of high volatility, so proceed with caution. Always use a stop loss level that caters to your individual risk tolerance. Update 06/09: Patience still. Bitcoin and crypto have been weak and another shoe could drop. Monitoring.
• Invesco MSCI Sustainable Future ETF (ERTH) between $67.76 - $70.82. Always use a stop loss level that caters to your individual risk tolerance. Update 06/09: ERTH closed at $75.90 yesterday. Hold longs. Chugging along.
• Invesco Exchange-Traded Fund Trust - S&P SmallCap 600 Pure Value ETF (RZV) at the 50-day moving average. Patience and wait for the pullback. Always use a stop loss level that caters to your individual risk tolerance.
• iShares Global Timber & Forestry ETF (WOOD) Initial buy idea zone between $79.07 and the 200-day moving average. Patience and wait for the pullback. Always use a stop loss level that caters to your individual risk tolerance.

I have SELL opinions for:

NONE

• Invesco DB Commodity Index Tracking Fund (DBC) $18.50 - $18.75. Target 17.50 (old highs) to $17.75. Always use a stop loss level that caters to your individual risk tolerance. Use caution if you are trying this trade, knowing that the DXY could capitulate. See the May 19th publication for more details. Update 06/08: DBC closed at 19.11 yesterday. As mentioned yesterday, if short, look to exit this trade regardless of price, before Thursday morning's CPI data release.

Traders should be out of DBC ahead of Thursday’s CPI data release.

I have a HOLD opinion for:

• First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID). GRID has traded through our idea range of between $86.91 and $88.17. Update 06/09: GRID closed at $92.02 yesterday. Opinion: hold longs. This one seems to have legs and I love the macro theme.
• Always use a stop loss level that caters to your individual risk tolerance.

Thanks for reading today’s publication. Please have a great day and remember to be patient on those entries!

Thank you,

Rafael Zorabedian
Stock Trading Strategist