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 then are 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 in real-time).
Several articles in Futures have highlighted the CPO’s ability to find market turning points. The blue lines above and below the projection line represent a two-sigma move and indicate overbought and oversold territory.
Dow Jones U.S. Healthcare ETF (IYH)
The healthcare sector has been taking it on the chin in the second half of 2015, but the CPO is indicating that a floor may have been reached and a significant upturn could be on the way. The CPO is giving the iShares Dow Jones U.S. Healthcare exchange-traded fund a clean bill of health for 2016 and predicting it could take out its 2015 high sometime in Q2.
The $64 question for equity analysts recently has been whether the August sell-off was a one-time correction or a mild first act in a more significant down move. While the CPO is indicating the market is a bit overbought in early November, it is suggesting that the worst is over and expects the S&P 500 to rally at yearend and into Q1 2016. However, the CPO is anticipating a top in Q1 followed by selling in Q2. How serious that move is may depend on whether the market is able to make new all-time highs.
U.S. Dollar Index
The U.S. dollar has been on an upswing of late thanks to a very positive October employment report, which has convinced most analysts the Fed will finally tighten at its December meeting. While the CPO forecasts continued strength in the dollar long-term, it by no means expects a smooth ride. In fact, the dollar may have peaked for the year. The CPO expects some mild weakness into the holidays before resuming its choppy upswing into 2016.