Crude bottom

October 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.

Crude oil

The CPO indicated that crude oil was massively oversold at its late August low below $40 per barrel, but is indicating that the recent huge volaitltiy may take a break for the rest of the year. It shows a significant bottom may have been set in August and signals a slow, steady rise for the remaineder of the year. Look for crude to test the spring highs above $60. 

Chevron

While there may be some question with crude oil, major energy firm Chevron (CVX) appears to have set a bottom in late August/early September. The CPO is showing that Chevron may have set a serious low and is indicating a strong upmove in the fourth quarter with continued strength into 2016. A cautionary element for both crude oil and Chevron may be expected strength in the U.S. dollar. 

U.S. dollar index

The U.S. Dollar Index has been going through a pretty choppy period after breaching the 100 mark earlier in the year for the first time in more than a decade. Volaitlty surrounded speculation on the Fed and the Chinese devaluation has added to the chop. The CPO, however, is showing that a significant bottom may have been set in late Augusat and is looking for a strong uptrend into December. The CPO is a cyclical measure, but a look at this snapshot taken on Sept. 2 shows it appears to be expecting the Fed to pull the trigger at its September meeting.

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.