Will protectionist fundamentals match technical outlook?

June 30, 2018 02:00 PM

Quant Cycles (formerly called the Cycle Projection Oscillator) is a technical tool that employs proprietary statistical techniques and complex algorithms to filter multiple cycles from historical data, combines them to obtain cyclical information from price data and then gives a graphical representation of their productive behavior. Other proprietary frequency domain techniques then are employed to obtain the cycles embedded in the price.


Walmart (WMT) has suffered sharp declines since the market peak in late January, without the subsequent rebound the broader equity market has seen. That is probably due to its exposure to a potential trade war with China, where a great deal of its products are manufactured. 

Walmart did begin to rebound in early February but took another leg down as tariff rhetoric from the President heated. The Quant Cycle analytics expected the downturn in Walmart to bottom out in mid-April before beginning a strong bullish period. It has not turned, pushing WMT close to oversold territory while expecting a strong upturn, very bullish. The bullish outlook for WMT is expected to persist well into Q4. This makes Walmart a strong buy, especially if talk of a tariff cools down. 


Like Walmart, Pepsico (PEP) turned lower as the market peaked in January and failed to rebound. In fact, PEP has seen sharper declines in the period between mid-April and mid-May than off the late January highs. This has occurred despite the Quant Cycle analytics indicating a mid-April reversal. This has put PEP in solid oversold territory with a bullish outlook. PEP’s bullish Quant Cycle outlook is not as sharp and is not expected to persist as long as WMT, but it is starting from a stronger (more oversold) base. The bullish cycle in PEP is expected to last until the end of the summer before turning lower. 


Despite the fact that many analysts see the technology sector having greater exposure to a potential trade war with China, Microsoft (MSFT) has been on a bit of a tear. MSFT had quickly recovered from the late January/early February weakness and made yearly highs in May. This despite a relatively weak Quant Cycle outlook for the first four months of the year. That also is changing as the Quant Cycle analysis shows a bullish outlook for MSFT. In reality, MSFT has been in an upward trend since the beginning of April, but it is not close to being overbought and the Quant Cycle expects MSFT’s upward trend to persist through September before turning lower. 


Since toying with parity (100) to the U.S. dollar at the end of 2016, the euro currency had been on a tear up until early 2018. After bouncing around its three-year high between 122.00 and 126.00 for the first quarter of 2018, the euro had dropped eight handles this spring at the time of this writing. The move has placed the euro near oversold territory in its Quant Cycles analysis just as the Quant Cycle anticipated a sharp upward cycle. This makes the euro a solid buy. The Quant Cycle expects the euro to rally sharply for most of the summer before peaking sometime in August. At that point, the euro is expected to reverse lower and possibly test the current lows. 


Of all the commodity markets that could be affected by a trade war with China, soybeans are on the top of the list. It was widely reported in May that China canceled massive amounts of U.S. soybean purchases, which led to further declines. Soybeans had sold off close to $1 per bushel since setting a 14-month high (and double top) at $10.82 on March 2.

Quant Cycle analysis has soybeans setting a bottom in late June before drifting higher through the growing season. Quant Cycle analysis shows soybeans peaking in late September during harvest and then turning significantly lower, which would match seasonal tendencies. 


Wheat has been in a consistent upward trend in 2018 interrupted by a bearish correction in March and again in May. The May correction may provide a buying opportunity as the Quant Cycle analysis moves from moderately higher to sharply higher in May and June. At that point, the Quant Cycle expects wheat to turn sharply lower and test the March correction low below $4.50 per bushel. Any mid-summer rallies could serve as significant shorting opportunities, as wheat is expected to tank in late summer before leveling out 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 johnrawlins@msn.com. @cpopro1. You can reach John at johnrawlins@msn.com.