Lumber prices rose, extending a rally to the highest level since May 2006, after U.S. housing starts and permits climbed more than analysts forecast.

Lumber futures for July delivery rose $8.40, or 2.7 percent, to $324 per 1,000 board feet at 7:52 a.m. on the Chicago Mercantile Exchange, the highest level since May 17, 2006.

Eoin Treacy's view Lumber prices remain in a seasonally firm period and continue to trend consistently higher within a step sequence uptrend. The fact that the contract was limit-up again today, particularly against the background of widespread profit taking in stock and other commodity markets suggests that the commodity is being viewed at least as a partial hedge. (Also See Comment of the Day on March 19th).

It has become somewhat overextended relative to the 200-day moving average in the short term, but a downward dynamic would be required to check the advance beyond a brief pause. A sustained move back below $280 would be needed to trigger an MDL stop, while a sustained move below $250 would pull back below the rising MA and question the integrity of the medium-term advance.

West Fraser Timber has one of the patterns most similar to lumbers among related companies. Both Rayonier and Potlatch, which have been leaders, are retesting areas of previous resistance and are somewhat overextended relative to their MAs. Sustained moves below their respective MAs would be needed to question medium-term upside potential, although some consolidation of recent powerful gains can probably be expected over the short term. Weyerhaeuser and Plum Creek both posted new recovery highs this week, but are also somewhat overextended relative to the 200-day MA. Sino Forest continues to post an unbroken progression of higher rally highs and higher reaction lows. These would need to be taken out to begin to question the consistency of the advance.