Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20
Does the Stock Market Really "See" the Future? - 12th Sept 20
Basel III and Gold, Silver and Platinum - 12th Sept 20
Tech Stocks FANG Index Nearing Critical Support – Could Breakout At Any Moment - 12th Sept 20
The Tech Stocks Quantum AI EXPLOSION is Coming! - 12th Sept 20
AMD Zen 3 Ryzen 4000 Questions Answered on Cores, Prices, Benchmarks and Threadripper Launch - 12th Sept 20
The Inflation Mega-trend is Going Hyper! - 11th Sep 20
Gold / Silver Ratio: Slowly I Toined… - 11th Sep 20
Stock Market Correction or Reversal? The Jury Isn't Out! - 11th Sep 20
Crude Oil – The Bearish Outlook Remains - 11th Sep 20
Crude Oil Breaks Lower – Sparking Fears Of Another Sub $30 Price Collapse - 11th Sep 20
Inflation by Fiat - 10th Sep 20
Unemployment Rate Drops. Will It Drag Gold Down? - 10th Sep 20
How Does The Global Economy Recover After This Global Pandemic? - 10th Sep 20
The Best Mobile Casino - 10th Sep 20
QE4EVER! - 9th Sep 20
AMD Ryzen Zen 3 4800x 10 Core 5ghz CPU, Cinebench Benchmark Scores (Est.) - 9th Sep 20
Stock Traders’ Dreams Come True – Big Technical Price Swings Pending on SP500 - 9th Sep 20
Should You Be Concerned About The Stock Market Big Downside Rotation? - 9th Sep 20
Options Traders Keep "Opting" for Even Higher Stock Market Prices - 8th Sep 20
Gold Stocks in Correction Mode - 8th Sep 20
The law of long-term time preference and Gold ownership - 8th Sep 20
Gold Bull Markets: History and Prospects Ahead - 8th Sep 20
Sheffield City Centre Coronavirus Shopping Opera Ahead of Second Covid-19 Peak - 8th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

False New Stocks Bull Market Signal From Coppock Curve Indicator?

Stock-Markets / Stocks Bear Market Jun 02, 2009 - 08:48 AM GMT

By: Guy_Lerner

Stock-Markets

Best Financial Markets Analysis ArticleI am seeing several articles in the main stream press and blogosphere regarding the "bullish signal" given by a technical indicator known as the Coppock Guide or Coppock Curve. As we can see in figure 1, a monthly chart of the Dow Jones Industrial Average (symbol: $DJIA), the Coppock Guide has turned up from a very low level. Thus according to the above referenced sources, this indicates a new bull market.


I am not so sure about that interpretation.

Figure 1. $DJIA/ monthly

Let's take a look at the indicator which was developed by E.S.C. Coppock and presented in Barron's in 1962 as a very long term buying guide. Coppock advised buying stocks when the indicator was below the zero and then turned up. The formula that I use to calculate the Coppock guide is:

1) use monthly data

2) use closing prices

3) calculation A: 14 month rate of change

4) calculation B: 11 month rate of change

5) summation of: (calculation A + calculation B)

6) take the 10 month weighted moving of the value in line 5

In TradeStation Easy Language code this looks like:

(WAverage((RateofChange(C,14) + RateofChange(C,11)),10))

My Coppock indicator, as presented in figure 1, is then wrapped in trading bands with a 36 bar look back period (or 3 year) to assess for extremes in the data.

In the one article that analyzes the current buy signal the author writes:

"Valid signals are those that turn up from under the zero line. And historically, the deeper the level at which the signal arrives, the more strength the following bull market has. This most recent signal is coming from a deeply oversold level - the most since 1938 (-417 to -400) and even further, 1932 (-643 to -616)."

This is a true statement. However, in the article the author is utilizing the S&P500 Index, which was not in existence until 1957, so one must assume that the data from 1920 to 1957 is the synthetic index that linked the S&P90 (pre 1957) with the S&P500 (post 1957).

More importantly, if we use a differernt (but similar) data set, like the Dow Jones Industrial Average, we get very different results. For example, in 1931 there were two deeply oversold signals (using DJIA data), when the Coppock indicator value was actually at or below the current and 1938 levels of the indicator. The first turn up of the Coppock Curve was in February, 1931, and the Dow closed at 190.30. The second turn up of the Coppock Curve was in August, 1931 with the Dow at 139.40. In both cases, the indicator turned down 1 month later, and the ultimate low was at Dow 40.60. Ouch!

Furthermore, the deeper the oversold level doesn't necessarily equate to a strong bull market once the indicator turns. Following the 1938 signal, the Dow only went about 15% higher before rolling over.

The author does acknowledge that "the Coppock Curve has given its share of false signals", but I am not sure what he means when he states that "we haven’t seen any (false signals) occur when the metric has curled up from such a deeply negative level." I know I have only shown you these two very, very oversold signals from the Dow in 1931, but very, very oversold didn't work for the Nikkei in the 1990's or for gold in the 1980's and 1990's either.

I have "sliced and diced" the Coppock Curve many ways and found that it does have some merit of identifying trend momentum. For example, if you buy the DJIA when the Coppock Guide is rising and sell when it is falling you get an equity curve that looks like figure 2.

Figure 2. Equity Curve

Since 1924, such a strategy yielded 6830 DJIA points versus buy and hold of 8600 DJIA points. There would have been 72 trades of which 50% were profitable; your time in the market was 47%. The strategy draw down is about 40%, which is not much of an improvement over buy and hold. From this study and by following the Coppock Guide, you can make 80% of buy and hold with approximately 50% market exposure, but it doesn't improve draw down over buy and hold.

My impression is that the Coppock indicator functions like most oscillators. They are great in a range bound market (like the 1960's); I don't believe they are very useful in an oversold or overbought market. Across multiple markets and in the Dow, there appears to be nothing unique about the Coppock Curve to indicate the onset of a new bull market.

By Guy Lerner

http://thetechnicaltakedotcom.blogspot.com/

Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of RealMoney.com and TheStreet.com as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

© 2009 Copyright Guy Lerner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Guy Lerner Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules