Leading Indicator Limit Down Today, Falling 25% in the Past 70 Days

May 28th, 2013

by Chris Kimble

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The Power of the Pattern suggested that a key economic asset could fall 50% in value back on 3/18, due to 20-year channel resistance and 75% bulls (see post here).

Lumber was trading at $385 at the time, today lumber is limit down trading at $287, losing 25% of its value in 70 days!

The above chart reflects that 100% of the time, when Lumber hit the top of its trading channel, it has fallen at least 50% in value, over and over for the past 20 years! I doubt that many of you trade lumber and many of you might be saying "Why should I care about Lumber? I don't own it!"

Let's look at lumber a little closer. The bottom of the channel was hit in 1995, 2001 and 2009, not bad times to be looking to buy stocks at low prices. The last serious decline by lumber took place in early 2011. What did the S&P 500 do after this lumber decline? SPY declined 17%, peaking in May of 2011.

Lumber is not the "Holy Grail" of stock market indicators, yet often times it has paid to respect it at the top and bottom of this 20-year channel and its message for the stock market!

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