Sideways Momentum

A Sideways Market is said to occur “when the price trend of a certain trading instrument has been experiencing neither an uptrend nor a downtrend.” Investopedia expands“Price activity oscillates between a relatively narrow range without forming any distinct trends.. a horizontal trading range or ‘channel’ is formed.. market participants can exploit a sideways market by anticipating breakouts either above or below the channel.”

2x4Policies notwithstanding, these are confusing times for ‘market participants’ in lumber circles. Equilibrium is evident (“the state in which market supply and demand balance each other and, as a result, prices become stable”). “What goes up must come down – and vice versa – doesn’t sound like a very sophisticated investment theory, but that, in a nutshell, is mean reversion,” says the Financial Post here. “If the current market price is above its average, it is expected to fall, representing a potential sell situation. Conversely, a buying opportunity exists if the market price is currently below its average.”

Hmmm. Mark Kennedy, CIBC confirms the long term average of WSPF 2×4 #2&Btr over the past 28 years (in today’s dollars) is US$370/MFBM. The price as reported by Random Lengths has oscillated between the narrowest of ranges, $372 and $375, for four consecutive weeks now. With all this in mind, can the extreme hand-to-mouth buying patterns in evidence in lumber markets today be any surprise?

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