Metals & energies in 2016

January 19, 2016 01:00 PM

We cranked up our predictive analytics engine and identified the markets we are forecasting to have the greatest promise for 2016.

To do this, we looked at the trading patterns across currencies, commodities and equities to find the assets that have the greatest return probabilities and skews. The winners are: Metals in the commodities sectors and oil and gas companies in equities. 

Let’s take a closer look at the stats: We’ve identified a couple of outliers in each category.

Commodities suffered in 2015, especially the metals sector. Through early December, gold and silver were both down more than 10%, while high grade copper and aluminum were both down close to 30%. 

For copper, it’s been in a steady decline since February of 2011, with the price down almost 55% from its 2011 peak. Sunnier times might be ahead, though, in 2016.

Looking at the trading patterns in all metals, two stood out by far with the most appealing one-year forecasts: Platinum (PL) and copper (HG).

For platinum we found 23 similar instances of the current one-year trading pattern going back to the 1960s. As you can see in “Most precious” (below), the average return for the next year is 14.2% with more than 6X the upside to the downside. Digging deeper into the statistics, there are no instances where platinum is down more than 23% in the next one year, while there are nine instances out of the 23 that are up more than 23%.

For copper, we found 21 matches going back to late 1950s, and “Copper dollar” (below) plots the next one-year returns of each of the similar matches. The average increase is 10.7% with an upside to downside ratio of 7.6X. Only once is a statistically similar match historically down more than 10% (-16% in 1998), and there are six instances of an increase of more than 10%, including a jump of 117.6% in 2010.

U.S. oil & gas stocks

Energy stocks also were beat up a lot more in 2015, with crude oil prices off more than 20% and a whopping 61% drop during the last 18 months. If you see a recovery in prices next year, which we are forecasting, then there are some great opportunities in the sector.  We identified two large-cap U.S. stocks with the greatest projected returns and upside: Anadarko Petroleum (APC) and ONEOK Partners (OKS).

For Anadarko, we found 34 statistically similar matches to its one-year price trend in the sector historically. The pattern looks very similar to those of energy stocks in 2008 (70% of the 34 matches are from this period), and the average return is 73.9%.  A whopping 88% of the historical matches are up 30% or more in the next year (see “Straight up,” below).

For ONEOK, we found 52 historical matches. You’ll see the projection chart in “A-OK” (bottom) highlight that there is 85% probability that the stock will be above an 11.2% gain in 2016.

About the Author

Dr. Steven Zhang is the CEO at EidoSearch.com, a  Ph.D. in electronic engineering and an internationally renowned expert in information processing technologies. His expertise is in the areas of signal processing, multimedia content analysis, computational intelligence, pattern classification, as well as, applications in bioinformatics and finance. 
@EidoSearch