Banks are back

April 19, 2016 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 in real-time). 

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

Bank of America

The CPO is indicating that a long-term low may be in place for Bank of America (BAC). While its current upswing is expected to level off in the spring, that may serve as a launching pad for a summer rally that should take BAC to a post-banking crisis high above $20. 

KBW Nasdaq Bank Index

No other sector suffered more than banking during the 2008 credit crisis and although the Nasdaq Bank Index (BKX) more than doubled between 2011 and 2015, it is still well off its high. The CPO expects the index to rally through the spring and could test last summer’s high as we move into the fall. 

S&P 500

The CPO is indicating that a near-term low may be in place for the S&P 500. While the analysis shows improvement,   it is unclear whether the market will be strong enough to make new all-time highs and the CPO expects the S&Ps to turn down again in September.

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.