Conclusion, Investment Implications, Strategy
The Invesco MSCI Global Timber ETF (CUT) is amid favorable conditions to resume its July 2020 Strategic advance from Tactical underlying support near $34.73, which was recently tested and held. A sustained rise above this area would target an additional 16% rise to 42.00 per share.
Analysis and Rationale
The Invesco MSCI Global Timber ETF (CUT) seeks to track the investment results (before fees and expenses) of the MSCI ACWI IMI Timber Select Capped Index (the underlying index). The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index, as well as American depositary receipts (“ADRs”) and global depositary receipts (“GDRs”) that represent securities in the underlying index. The underlying index is comprised of equity securities of companies that are primarily engaged in the ownership and management of forests and timberlands and the production of finished products that use timber as a raw material. The fund is non-diversified.
The upper panel of Chart 1 below plots CUT daily since October 2020 along with its 200- and 50-day moving averages, widely-watched major and minor trend proxies. The lower panel displays a corresponding daily relative performance chart of CUT versus the benchmark S&P 500 (SPX, blue) along with its 63-day moving average (green, quarterly, our Strategic time period).
The rightmost green highlights in the upper panel show that CUT appears to be resuming its July 2020 major uptrend, as defined by its 200-day MA, following a Feb 26th test of the 50-day MA. Meanwhile, CUT’s current trend of quarterly relative outperformance versus SPX as shown in the lower panel also appears to be resuming following a test of it on that same date. A sustained rise above the 50-day MA, currently situated at $34.73, would help to confirm this and would target an additional 16% rise to $42.00 per share.
Table 1 below shows that considering the aforementioned upside target and a protective stop placed below the $34.77 area, a long entry price of $36.37 would provide a 1:3.5 risk/reward ratio (risking $1.00 to make $3.50) with an initial risk of 4.4%.
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