"Low Energy": The CPO borrows from Trump

March 19, 2016 05:00 PM

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 in real-time). 

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

Crude oil

The last time we looked at the crude oil market the CPO peaked at bottom.  While at first it looked prescient if a little early, crude has taken another step down. Now the crude oil market appears extremely oversold. What is interesting about the CPO’s analysis of the crude oil market is that, while it appears to be at a turning point, any rebound looks to be temporary. After rebounding into spring, the CPO expects crude to take another step down in the summer.

British Petroleum

Like most stocks in the energy space. BP has had a tough go of it recently. In addition to the massive drop in the price of crude oil and natural gas, BP has dealt with the continuing fallout from its liability in the 2010 Deepwater Horizon oil spill. The CPO expects BP stock to stop the bleeding in the first half of 2016 but does not project a recovery any time soon. The CPO is indicating BP will take another leg down in the second half of the year, so any rebound could present a shorting opportunity.

Natural gas 

The price of natural gas has been at depressed levels far longer than the crude oil market. The CPO offered an opportunity for natural gas in the oversold area late in the year just prior to a rebound. Looking forward, the CPO is expecting natural gas to follow its normal injection season tendencies: Continued weakness through the winter with a rebound in the spring injection season.

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.