New housing starts fall on lumber

But with prices moving lower in lumber this month, the data for May could be stronger!

Downtrend 3

US Housing Starts for April were much worse than expectations, coming in at an annualized rate of 1.569M vs an expectation of 1.71M and a revised 1.733M in March.  This turns out to be -9.5% for April vs -2.8% expected after a revised 19.8% in March!   Could this be the beginning of worse than expected housing data for the month of April?  On Friday, the US will release existing home sales for April. Next Tuesday, the US will release New Home Sales and next Thursday the US will release Pending Home Sales.   Today’s data was expected to be weaker than that of March, however, it wasn’t supposed to be this poor.  Why weren’t houses being built during April?  The most obvious place to look is to the price of lumber.     

What are economic indicators?


The price of Lumber has been rising since June 2020, however during the month of April, price went parabolic, moving from 1006 on April 1st to 1502.3 on April 30th, an increase of nearly 50%.  Prices reached a high of 1711.2 on May 10th.  Then: “TIMMMMMMMBBBBBEEEEERRRRR”  Price fell from the highs to today’s lows near 1264, a move of 447.2, or just over 26%!  Horizontal support is just below at the April 21st lows near 1243.7. 

Source: Tradingview, City Index

On 240-minute timeframe, notice how the RSI signaled there could be a change ahead as it diverged with price. (However, that was quite a move before price actually turned).  Price closed Tuesday just below the 50% retracement level from the March 17th lows to the May 7th highs, at 1264.  The 61.8% Fibonacci retracement below the April 21st lows is the next level of support at 1168.8.  Horizontal support beneath that is all the way down at 1030.3.  There is some horizontal resistance near 1481.5, and then just above there at the broken trendline near 1500.  After that, price can run all the way back up towards the all-time highs. 

Source: Tradingview, City Index

(Note that we can’t create Fibonacci retracements from the high to the current low because we don’t know where the low is for this move yet)

With the move higher in lumber in April, housing starts were worst than expected.  We’ll find out later in the week and next week if the higher lumber prices were passed through consumers buying new homes, and even existing homes!  But with prices moving lower in lumber this month, the data for May could be stronger!

Learn more about commodity trading opportunities.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.