"Enders Analysis has just published a report on paper. I am not a subscriber to Enders so only get the same summary you see here. It may nevertheless represent an interesting opportunity for the Collective. Maybe also there will be subscribers with direct experience of the paper industry which I do not. I would be interested in your thoughts."

Eoin Treacy's view Thank you for this interesting question. Paper is a highly competitive business but should benefit from the growth of the global middle class, led by the population centres of Asia. Lumber and to a lesser extent cotton are important raw materials for the sector.

Lumber broke a five-year downtrend in November last year and had become relatively overextended compared to the 200-day moving average by late April. It pulled back into the previous range by early May and has now begun to lose downward momentum in the region of the 200-day moving average. An upward dynamic is now needed to check the decline while a sustained move back above $250 is required to break the short-term progression of lower rally highs. (Also see Comment of the Day on April 16th)

Cotton, having doubled from the late 2008 low, has paused in the region of the 2008 and 2003 highs and is rapidly unwinding the overextension relative to the 200-day MA. It is currently testing the lower side of the short-term range and an upward dynamic, similar to those already posted within this range, is required to indicate demand is returning at this level. A sustained move above 85¢ is needed to reassert the medium-term uptrend.

This is a list of some of the largest paper related companies. Some are pure plays on paper and packaging while others also have some exposure to transport and steel or plastic packaging so additional research will be required as part of one's due diligence in vetting these companies. One common aspect to this list is that countries with abundant timber resources such as the USA, Brazil, Sweden and Finland are well represented. Interestingly, no Canadian company makes it into the top-50 by market cap; perhaps because they fall into forestry rather than paper companies. .

While lumber prices have pulled back violently, timber related shares have been less severely impacted and have generally held above their 200-day moving averages. West Fraser Timber, which produces lumber and paper remains in a consistent uptrend and is currently forming another equal-sized consolidation. A sustained move below C$38.50 would be required to question the consistency of the advance.

International Paper rallied impressively from the March 2009 low but has now retraced the entire panicky decline and lost momentum below $30. It found support above $20 from early May but needs to sustain a move back above the 200-day moving average near $23.50 to confirm demand is returning to dominance in the current area.

Finland's UPM-Kymmene found support above the previous range from late April and is forming another relatively equal sized consolidation. A sustained move below €9 would be required to question scope for further upside.