Market Indicators: The Best-Kept Secret to More Effective Trading and Investing

Chapter 12. Looking to the Futures

	Selling a soybean contract short is worth two years at the Harvard Business School.
	--—ROBERT STOVALL, Wood Asset Management

The typical person on the street had never heard of the U.S. Commodity Futures Trading Commission (CFTC)—at least, not until the summer of 2008. Oil experienced a superspike that season, one that took retail gasoline to a nosebleed $4 per gallon. Filling a truck could cost more than $100. Car dealerships, the lifeblood of many small towns, went bust as row after row of SUVs stood unwanted at any price. General Motors, Ford, and Chrysler hemorrhaged even more money than usual.

The weakening dollar and increasing difficulty in meeting the global thirst for oil may have explained the gradual increase to $100 per barrel (equivalent to $3.50 for a gallon of gasoline), it didn't satisfy the public's search for a reason that oil had gone from $100 to more than $147 a barrel in just a few months. Congress wanted answers; to get them it turned to the CFTC, which regulates the futures market.

A future is an obligation to pay and take delivery of an asset, usually a commodity such as corn or gold, at a given future date. The person selling, or shorting a contract, locks in a price for the asset and is obligated to deliver the asset at the given future date. Equity investors can use the forward-looking futures market to better forecast earnings for companies that deal with commodities. By charting moves in financial futures, traders may ...