Action and Reaction

The Japan event of March 11, 2011 is probably going to be stimulative. Japan unlike Haiti is a large modern economy and the re-build will be a priority for the Japanese people. We know that Japan will need a lot of “stuff” – commodities, machinery, and infrastructure along with complicated transportation needs.

Technical analysts tend to believe that for every negative event there is a positive event somewhere else – sort of like Newton’s laws of motion – one being action and reaction. The negative Japan event should boost the price of coal, copper, wood and natural gas. Now the one big commodity laggard over the past several years has been the price of lumber – likely due to the depressed U.S. housing starts. We need to watch lumber closely. Note the weekly chart displaying lumber’s intermediate cycle along with a very slow %K and %R stochastic. Note the current down cycle and the bullish flat price, a sign that the intermediate cycle will turn up above the zero line. If we break above that 5-year level we need to buy the beneficiaries – action and reaction