Commodity traders have turned their attention to the lumber market because several key indicators have triggered sell signals on the charts. As many of you know, seasonal shifts in supply and demand have led to significant increases in lumber prices over the past several months. Despite the moves higher and current market sentiment, the charts shown in the article below suggest that the conditions could be gearing up for a pullback. (For more, see: Watch Out Below For Falling Lumber Prices.)

Lumber – Random Length Continuous Contract

Taking a look at the spot price of lumber over the past twelve months, you can see that the price has experienced a significant move higher, but the bulls seem to have lost their conviction over the past couple of sessions. 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. (For more, see: Commodities That Move Markets.)

Guggenheim Timber ETF

Many retail traders who are interested in gaining exposure to lumber turn to the Guggenheim Timber ETF (CUT). For those who don’t follow this fund, it is currently comprised of 29 securities that are strongly correlated to the timber market, and it trades with a reasonable gross expense ratio of 0.76%. Taking a look at the chart below, you can see that the impressive rally over the past couple of months has sent the price toward the combined resistance of its 200-day moving average and a major descending trendline. Technical traders would expect to see the price bounce off of these levels, and many will likely use the bearish crossover between the MACD and its signal line as confirmation. Bullish traders may want to remain on the sidelines until the price can close above $23.32 or $25.39 depending on their risk tolerance. (For more, see: Does Money Grow On Trees?)

Weyerhaeuser Co.

When it comes to investing in the lumber market, there is no other company quite like Weyerhaeuser Co. (WY). This company has an impressive market capitalization of nearly $25 billion and owns 13.2 million agrees of timberland. As you can see from the chart below, the price has experienced a similar run as what was shown in the charts above, and it is also in the process of testing a significant level of resistance. Technical traders will use the overbought reading on the RSI (shown by the red circle) to suggest that a pullback could be in store. Bullish traders may want to remain on the sidelines for a better entry point to reveal itself. (For more, see: A Big Deal In Timber, But It's Not The Time To Buy Timber.)

The Bottom Line

Lumber prices have experienced an extremely strong run up over the past couple of months. However, based on the charts shown above, the upward momentum could be slowing and nearing a pivot point. Active traders will likely be watching for a pullback at this point, and many bullish traders will likely want to wait on the sidelines for a better entry point. (For more, see: Growing A Fortune With Timber.)