A Look at Lumber Prices and a Timber ETF

The Guggenheim Timber ETF (NYSEArca: CUT), which features exposure to global companies that own or lease forested land and harvest the timber for commercial use and sale of wood-based products, is off 6.5% year-to-date. If some predictions about lumber price declines are accurate, CUT could be in for some more trouble.

Lumber prices have been strong to this point in 2016 and although the commodity is overlooked relative to gold or oil, it is viewed by some savvy market veterans as an accurate gauge risk appetite and sentiment. The problem for CUT and timber stocks is that lumber prices could be turning lower.

“The relative weakness has triggered a bearish crossover between the MACD indicator and its signal line (shown by the red circle), which could be an early indication of a move toward the long-term support of the 200-day moving average ($257.98). Bullish traders may want to remain on the sidelines for the next several weeks to see if the support levels near $260 can hold,” according to Investopedia.

The improved housing number provides support for the timber market as home construction makes up 40% of U.S. lumber demand. Consequently, traders and analysts believe the recent surge in housing activity could extend the rise in lumber prices.