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).
Several articles in Futures/Modern Trader 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.
While gold has rallied off of multi-year lows since August (thanks mainly to the sharp drop in equities and rising levels of fear) the CPO is projecting a much more significant rise in the price of gold as we enter 2016. The CPO shows a gentle upslope in gold gaining momentum as we enter December. It also shows the rally going into early 2016, setting a significant high from which to short.
With all the talk regarding plummeting crude oil prices, there has been little attention paid to natural gas, which is also near long-term lows. The CPO does not offer much long-term hope for gas bulls, though it does forecast a mover higher. The CPO projects natural gas to move higher as we enter the heating season but does not anticipate a move much beyond recent highs of around $3 and forecasts the market turning down again in Q1 2016.
The XAU Gold and Silver Index, which tracks 29 precious metal mining stocks, has been a good indicator for gold. The CPO on XAU turned up prior to the August stock market correction, which provided the impetus for a rally in gold. It is showing a stronger bullish outlook for the sector than the CPO on gold, as well as a more severe top as we go into 2016. Keep your eye on gold and gold-related stocks in late 2015 and early 2016.