From the February 01, 2010 issue of Futures Magazine • Subscribe!

Is Dow reversal at hand?

The March 2003 Futures “Tech Talk” in “Stocks at war” displayed an Cycle Projection Oscillator (CPO) analysis that clearly projected the Dow Jones Industrial Average Index making a bottom. In fact, the article stated, “We are confident in the model’s current forecast, which projects a major bottom for the Dow in the first half of 2003.” The analysis was right (see chart below).

In the July 2007 issue of the “Tech Talk” we stated that our complex algorithms in the CPO indicated the multi-year bull move in the stock market may be ending. (see chart).

In the December 2008 Futures “Tech Talk” we stated that the decline was ending and would move higher, we also stated however that the Dow is expected to dip lower again in 2010 (see chart).

Now once again our complex algorithms (CPO) indicate that the stock market rally is ending and starting a move that should take the Dow under the 9000 area by mid-2010 (see chart).

How do we take advantage of the analysis? We take a closer look at the weekly analysis (see below chart) indicating a low in the May-June time frame. There are several ways to take advantage of a decline in the Dow however my favorite is buying an at the money put option and selling an out of the money put option and I prefer to do this with the June expiration.

The CPO uses complex algorithms to filter multiple cycles from historical data, combines them and gives a graphical representation of their productive behavior. The CPO methodology employs proprietary statistical techniques to obtain cyclical information from price data. Other proprietary frequency domain techniques are then employed to obtain the cycles embedded in the price.

John Rawlins, trader, analyst, consultant and developer of the CPO can be reached at johnrawlins@msn.com.

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