Relative Strength

The Relative Strength Index (RSI) is defined at Investopedia as “a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.” Ranging from 0 to 100, an asset is deemed to be overbought once the RSI approaches the 70 level, and oversold if it approaches 30. In Lumber prices limber up for bull run, The Financial Times told us yesterday that the 14-day RSI for lumber is about 66, suggesting “the latest rally is not particularly overstretched.”

Likely of greater interest to lumber traders in the same report: “Over the past ten years, November has been the most bullish month, with lumber gaining an average of 7.9 per cent – though that does include the 31.7 per cent pop off the 2009 lows.”

This year, could this 7.9% average price gain be offset by a 5% reduction in the export tax (to zero) next month? Some might consider that wishful thinking. Heightened caution in the marketplace in recent weeks, in anticipation of a correction next month, may have fueled the fire. With November just days away, we’re told traders now “fret that low inventories will be further denuded by the closure of some Canadian mills.”

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