The financial world often fixates on the dramatic fluctuations of stock market indices and the volatile realm of cryptocurrencies. While these sectors command attention, they represent only a fraction of the vast and intricate machinery that drives the U.S. economy. The Options Futures and other Derivatives, encompassing commodities, currencies, and interest rates, form the bedrock of this system, providing a real-time pulse of economic activity. To truly grasp the dynamics of the broader economic landscape, a comprehensive analysis of futures is essential. This article outlines a method for constructing an Excel spreadsheet to analyze the momentum and prices of futures contracts, both for short-term (5-day) and medium-term (6-month) perspectives.
The Power of Futures:
Futures contracts, agreements to buy or sell an asset at a predetermined price and future date, are the lifeblood of global commerce. They facilitate price discovery, risk management, and speculation across a spectrum of assets:
Commodities: Energy (crude oil, natural gas), agriculture (corn, soybeans), and metals (gold, copper) are fundamental inputs for production and consumption. Their price movements reflect supply and demand dynamics, geopolitical events, and economic growth.
Currencies: The foreign exchange market, where currencies are traded, is the world's largest and most liquid market. Currency futures enable businesses and investors to hedge against exchange rate fluctuations.
Interest Rates: Interest rate futures reflect expectations for future monetary policy and economic conditions. They influence borrowing costs, investment decisions, and the overall health of the financial system.
Compared to the relatively limited scope of stock indices and crypto, these markets provide a far more comprehensive picture of the economic forces at play.
Building the Excel Analysis Tool:
To analyze futures momentum and prices, we'll construct an Excel spreadsheet with the following components:
Data Acquisition:
Reliable data is paramount. Sources like Yahoo Finance, Bloomberg, or your brokerage platform can provide historical and real-time futures prices.
Excel's "Get Data" functionality, particularly "From Web" or Power Query, can automate data retrieval. For excel 365 users, the stock data feature can be very usefull.
Organize the data into columns: Date, Open, High, Low, Close, and Volume.
Momentum Calculations:
5-Day Momentum: Calculate the percentage change in closing prices over the past five trading days. This provides a short-term indication of price direction.
Formula: =(Close(today) - Close(5 days ago)) / Close(5 days ago)
6-Month Momentum: Similarly, calculate the percentage change over a six-month period to gauge the medium-term trend.
It is important to determine how you want to measure the 6 month period. For example, by calendar months, or by a set number of trading days.
Formula example: =(Close(today) - Close(6 months ago)) / Close(6 months ago)
By adding columns that show the difference between moving averages, you can also add other momentum indicators.
Price Analysis:
Moving Averages: Calculate simple moving averages (SMAs) for various periods (e.g., 20-day, 50-day, 200-day). These smooth out price fluctuations and identify trends.
Volatility: Calculate the standard deviation of daily price changes to measure volatility.
Price comparisons: add columns that show the current price compared to the 52 week high, and 52 week low.
Visualization:
Create line charts to visualize price trends and moving averages.
Use bar charts or histograms to display momentum and volatility.
Excel's conditional formatting can highlight significant price or momentum changes.
Adding Context:
Add columns that show news events that relate to the specific future being tracked. For example, weather reports for agricultural futures, or OPEC meetings for oil futures.
Add columns that track economic reports that may effect futures prices.
The Broader Economic Picture:
By analyzing futures data, we gain insights into the underlying forces that shape the U.S. economy:
Inflationary Pressures: Rising commodity prices, particularly energy and agricultural products, can signal inflationary pressures.
Economic Growth: Increased demand for industrial metals and energy often reflects robust economic activity.
Interest Rate Expectations: Fluctuations in interest rate futures provide clues about the Federal Reserve's future monetary policy decisions.
Global Trade: Currency futures reflect the strength of the U.S. dollar and its impact on international trade.
In contrast, stock market indices, while important, primarily reflect investor sentiment and corporate earnings. Cryptocurrencies, with their speculative nature, are even more detached from the real economy.
Conclusion:
Constructing an Excel spreadsheet to analyze futures momentum and prices provides a powerful tool for understanding the intricate workings of the U.S. economy. By moving beyond the narrow focus of stock indices and cryptocurrencies, we can gain a more comprehensive and accurate perspective on the forces that drive economic activity.
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