Firm bottoms

September 21, 2015 09:00 AM

The Cycle Projection Oscillator (CPO) is a technical tool that 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. 

In the CPO charts, the green line represents the detrended market price and the red line indicates the CPO projection (the bar charts shown above the CPO show the market’s trading). 

The blue lines above and below the projection line represent a two-sigma move and indicate overbought and oversold territory.

30-year bond yield

The CPO is indicating that 30-year bond yields probably have hit a near-term bottom and will begin a slow grind higher with yields extending upward as we move to 2016. The chart tracks current fundamentals as the Federal Reserve is expected, by many, to tighten interest rates for the first time in nine years this September, with a possible second round of tightening in December or the first quarter of 2016. 

Gold

Gold has been weakened of late by a resurgent dollar and is close to its early 2010 low of $1,044.50. The CPO is showing that a bottom is close at hand and expects gold to begin to move higher for the remainder of the year. However, the CPO is indicating that strength in gold, while perhaps able to challenge the 2015 high just above $1,300, will flame out early in 2016.

Southern Company (SO)

Southern Company (SO), one of the largest generators of electricity in the United States, has an impressive 35-year history of growth. SO experienced a 20% correction in 2015 and the CPO is indicating the pain may not be over. The CPO shows that the July rally in SO has moved it into overbought territory above $45 and may be a sell. However, longer-term SO is expected to make a significant bottom in early fall and begin a move that could challenge its all-time high. SO looks to be a solid buying opportunity this fall.

About the Author

John Rawlins is a former member of the CBOT with more than 30 years of experience in trading and research. He co-developed the Cycle Projection Oscillator, which has been featured in Futures and numerous research reports, with an aerospace engineer to identify the dominant cycles in a data stream and project them into the future. Reach John at johnrawlins@msn.com. @cpopro1. You can reach John at johnrawlins@msn.com.