A Complete Guide to the Futures Market: Technical Analysis, Trading Systems, Fundamental Analysis, Options, Spreads, and Trading Principles (Wiley Trading) by Jack D. Schwager

Author:Jack D. Schwager [Schwager, Jack D.]
Language: eng
Format: epub
ISBN: 9781118859544
Publisher: Wiley
Published: 2017-01-02T22:00:00+00:00

In the preceding example, CS represents a supply variable, while HS, BS, and T represent variables that affect demand. Trend affects demand through inflation (more will be demanded at each nominal price level because of inflation) and possible other factors that have a trending characteristic.

As another example, in attempting to forecast copper prices, one of the ways we could incorporate the demand effect would be by focusing on the level of activity in the key copper-using industries. Figure 22.11 illustrates the relationship between copper prices and an index of new housing for the same 21-year period that was surveyed in Figure 22.10. Figure 22.12 illustrates the relationship between copper prices and domestic auto sales during the same period. Note how the declines in housing starts and automobile sales preceded downturns in copper prices, including the 1980 to mid-1982 decline. Recall from the previous section that the imposing 1980 to mid-1982 bear market seemed somewhat puzzling when viewed solely relative to the stock/consumption ratio. Figure 22.11 and 22.12 illustrate how this seeming paradox can be resolved once demand factors are considered. Of course, the specific demand factors included would change over time. For example, our copper illustration focused on the 1973–1993 time segment. In a current copper price model, indicators of emerging market demand would be far more critical than they were then.

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