Buy gas & producers; sell crude

May 18, 2017 01:15 PM
Cycle Projection Oscillator: Rocket science meets markets

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 predictive 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.

Crude oil

The CPO nearly picked the March bottom in crude oil and while it expects crude oil to continue a modest rebound through the end of spring another, perhaps stronger, sell-off is in the wings. The CPO is showing that crude will set a top in June and begin another slide, likely to take out the recent lows and challenge the November 2016 low of $42.20. The sell-off is expected to last into August before turning back higher in the fall. 

Natural gas 

The CPO forecasted the recent natural gas rally but had expected it to top off in March. As natural gas continued to rally into April, it has created a nearly overbought situation in the CPO. While this may provide a strong selling opportunity in the spring, that opportunity will be short term as the CPO is projecting a major bottom by the end of April beginning of May. That bottom will provide a launching pad for a stronger move higher that could fill the gap created just below the December high. The CPO suggests the rally will last through the summer before topping off. Any strong spring sell-off should be a good buying opportunity. 

Nyse Arca Oil & Gas Index (XOI

While the forecasts for crude and natural gas are mixed, things are looking all positive for their producers. The CPO is indicating that the NYSE Arca Oil & Gas Index (XOI) has set a bottom in March and will rally sharply for most of 2017. The fundamentals may be supporting this view as the sector is expecting to receive regulatory relief under the new Administration. The CPO expects XOI to rally into the summer before leveling off late in the summer and resuming higher in the fall.


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 @cpopro1. You can reach John at