Don’t Overlook the Trees for the Forest

According to the Timberland Index maintained by the National Council of Real Estate Investment Fiduciaries (NCREIF) timber price movements have a very low correlation with other asset classes. In other words lumber is uncorrelated to stocks and bonds

At the close February 27, 2012 many lumber related stocks closed higher in an otherwise dull blue Monday for the broader North American stock indices. Higher were, Acadian Timber Corp. (ADN) +0.8%, Canfor Corporation (CFP) +1.43% International Forest Products (IFP.a) +3.48%, Tembec Inc (TMB) +1.1% andWest Fraser Timber (WFT) popping +3.68%. In the US International Paper Co. (IP) +3.01% and Weyerhaeuser Co. (WY) +1.8%

There are no Timber exchange-traded funds (ETFs) in Canada and so stock picking is required, In the U.S. there is the Claymore/Clear Global Timber Index (AMEX: CUT) and the iShares S&P Global Timber & Forestry Index (Nasdaq: WOOD). Both ETFs invest in timber REITs, as well as companies related to the industry: paper, packaging, etc. We technicians know that price will lead the fundamentals and so perhaps the strength in the forest sector is telling us two things – a recovery in the US housing sector and increased global demand for lumber. Our chart displays lumber over the SPDR Home Builders with both running up to and possibly above their 2010 and 2011 price peaks. The forest stocks seem to anticipating this very bullish scenario.

Cisco’s Secular Bear

Cisco’s Secular Bear began in early 2000 and is now into year 12 which is displayed in the very long term chart. Note also the shorter Kitchin Cycle which is a short business cycle of about 40 months discovered in the 1920s by Joseph Kitchin.

These are noted as the cycles (1), (2) and (3) in the lower plot

The pending 4th cycle should drive CSCO up and out of the secular bear – in effect introducing a new secular bull or an “Echo” Global Tech Boom. The first technology boom and bust was mostly confined to the English speaking countries. A pending “Echo” technology boom should be a global event with the survivors of the first technology boom and bust being the beneficiaries. Now what is good for Cisco is good for the broader technology sector, and so we need to monitor CSCO to see if the pending break above $20 will be the beginning of another secular bull that could drive the stock up and out of that 12-year period of price congestion.