Trying to pick a bottom in crude oil has been an expensive habit of late. Just over a week ago analysts were talking about WTI crude oil’s inability to settle below $40 as a sign of a bottom. Seemed to make some sense too as it was corresponding with the annual OPEC meeting, that many people thought would produce some proposal on production that would push crude higher. OPEC, however, didn’t blink.
You may recall that in the initial 2014 sell-off from above $100 many so-called experts saw $80 (and then $75) as a magic line that that could not be crossed. Well it was blown away. The March low around $42 seemed safe as crude railed nearly 50% in the second quarter but selling returned in the summer and support was taken out.
Oddly, with all the geopolitical intrigue and conflicts in oil producing regions, the technical have been a better measure of crude as it has clung to it is long-term trend line (see chart). The only technical test left for crude is its February 2009 low of $32.30.
The art of forecasting markets has been difficult so perhaps it is time to look at the science. And the science behind Modern Trader contributor John Rawlins’ Cycle Projection Oscillator (CPO) is pretty strong. Rawlins developed the CPO many years ago along with a NASA scientist. While by no means a crystal ball, the CPO has been able to catch market turning points on several occasions. Currently the CPO is suggesting that WTI crude oil will set a major bottom this month (see chart).
We highlight this in the February “Cycles” department, which will be out by Jan. 1, but given the nature of what it is indicating, we thought we would share it with you now. Perhaps more interesting than the suggestion that crude could be close to a significant bottom is that the CPO is also forecasting that could turn around and test lows again similar to what it did this year.