Technician forecasts one other 35% rally for lumber – 4 methods to play increased demand


Lumber costs are on a tear.

The commodity topped $1,000 last week, a report excessive and a promising signal of a rebound in demand for constructing supplies because the economic system recovers from the coronavirus pandemic.

Craig Johnson, chief market technician at Piper Sandler, stated the charts forecast much more upside forward.

“Keep seated, nevertheless it seems like you may have 30-35% extra upside, primarily based upon the scale and technical breadth of this technical setup right here for lumber costs. There is no doubt that lumber costs are going increased,” Johnson advised CNBC’s “Trading Nation” on Friday.

Johnson stated three homebuilder corporations reporting earnings this week may benefit from elevated demand for lumber – Home Depot, Lowe’s and Toll Brothers.

“For those who take a look at Dwelling Depot for instance, this can be a inventory that is been in a downward trending value channel, and it’s extremely near inflecting and reversing that channel, and beginning to take one other leg increased. I feel that is a inventory that can in all probability have excellent outcomes,” he stated.

Toll Brothers and Lowe’s additionally look to be on the verge of a breakout after forming stable bases, Johnson added.

Boris Schlossberg, managing director of FX technique at BK Asset Administration, added one other inventory play, Lumber Liquidators, to the listing of names that will profit from increased demand. He stated secular developments and a extra everlasting shift to a work-from-home surroundings might assist the group.

“Dwelling Depot and Lowe’s are going to be excellent long-term holds as a result of the work-from-home phenomenon is just not going to cease with Covid,” Schlossberg stated throughout the identical interview. “If Lowe’s and Depot report properly, you may have a sympathy rally in Lumber Liquidators, which has performed very well.”

Schlossberg added that these corporations might see margin stress tied to the upper price of lumber, although he contends the potential upside outweighs that threat.

Dwelling Depot and Toll Brothers are set to report on Tuesday and Lowe’s on Wednesday. Lumber Liquidators is scheduled for March 2.