Timber-r-r-r ... Lumber Plays Getting Felled

 | Oct 27, 2016 | 4:00 PM EDT
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What happens when you see four stocks in the same industry with similar looking charts? Answer: You draw a conclusion. Taking a look at the charts of four companies in the lumber/wood products industry we came to the conclusion that investors must be anticipating that business is going to weaken. That may or may not be the fundamental driver, but I can say the charts look weak and could fall further.

I need to save this chart, below, to a file of "best chart patterns." Prices for shares of Deltic Timber (DEL)  rise in an upward sloping channel until they break down very quickly. It took months for DEL to rally $20, but only a few weeks to give most of that rally back. Notice how the On-Balance-Volume (OBV) line peaked in May and signaled more aggressive selling for four months before prices broke. With the OBV line at a new low and the MACD oscillator bearish, I would anticipate further losses for DEL.

In this daily chart of Weyerhauser (WY) , below, we see prices rolling over the past seven months. WY is now below the declining 50-day average line. WY is now testing the 200-day average and a close below $29.50 will break the moving average line and will be a new low close for the move down. The OBV line is neutral as is the MACD oscillator.

Shares of Louisiana-Pacific (LPX) , as seen in the chart below, are breaking their rising 200-day moving average line, but that is not all that is bearish. The slope of the 50-day average is bearish. The OBV line has made a new low for the move down and tells us that sellers have been more aggressive the past three months. The trend-following MACD oscillator is in negative territory.

In the daily chart below of Universal Forest Products (UFPI) we can see how the recent $25 slide has broken the 50-day and 200-day moving averages. The OBV line has broken its May low, foreshadowing further prices declines for UFPI. Also the MACD oscillator is in bearish territory and is a long way from a buy signal. A test of support in the $85 to $80 is likely. Maybe it holds or may not. Keep an eye on this one.

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