Posted 04 February 2009 - 06:24 PM
Posted 02 April 2009 - 01:53 PM
Edited by SilentOne, 02 April 2009 - 02:02 PM.
Posted 03 June 2009 - 04:16 PM
BTW all the indices have given a Coppock buy signal based on May's close. FWIW.
The $SPX needs to stay above 870 to remain flat or better. The $SPX Coppock stands at -409 up from -417. That's after a 40% rally from the March lows. Time will be the greatest judge of where we are. Time and market cycles.
Will the Coppock lead the bulls?
Your guide to the Coppock Guide
Commentary: Get ready for a buy signal from an obscure indicator
By Mark Hulbert, MarketWatch
ANNANDALE, Va. (MarketWatch) -- According to a number of the technically oriented newsletters I monitor, a highly regarded but little-known market-timing model is poised to declare that we're in a brand new bull market. All that must happen for such a buy signal is for the stock market not to decline by more than 4.6% from current levels.
Interested in the identity of this obscure indicator?
I thought so.
It is the Coppock Curve, also known as the Coppock Guide. It is named for Edwin Coppock, who introduced the indicator in an article for Barron's in 1962. Though that indicator is not widely known among individual investors, it is highly respected by the cognoscenti: Coppock himself was given a lifetime achievement award by the Market Technicians Association in 1989, and a number of the newsletter editors I monitor make reference to the indicator.
In essence, the Coppock Guide is a momentum indicator that filters out shorter-term market swings in order to focus on the market's long-term trend. Its calculation involves a number of steps:
At the end of each month, calculate the percentage change of the market relative to where it stood 14 months earlier.
Also at the end of each month, calculate the percentage change of the market relative to where it stood 11 months earlier.
Calculate the sum of these two percentages.
Calculate a 10-month moving average of this sum, front-weighting that moving average to give greater weight to more recent readings.
Though technical analysts over the years have introduced various ways of using the Coppock Guide, it is traditionally interpreted to issue a buy signal whenever it turns up from a negative reading. That means that a buy signal could have happened any time since May 2008, when it first went negative. Each month-end since then, however, has seen an even lower reading -- including that registered at the end of April.
This indicator's followers readily admit that it will be late in identifying a market bottom. That's hardly a surprise, since it is based on 11-month and 14-month rates of change.
Nevertheless, many of the indicator's adherents also insist, it is a very reliable indicator of a new bull market when it finally does send a buy signal. The editors I monitor who follow the Coppock Guide refer to it in glowing terms, using phrases like "uncanny" and "nearly infallible."
But I'm not so sure.
Yes, the indicator has done an impressive job of flashing buy signals at major market bottoms, such as the summer of 1982 and early 1975.
But it also has had some major missteps. The Coppock Guide gave a buy signal in December 2001, for example, nearly a year prior to the final low of the 2000-2002 bear market. And the indicator appears to have also flashed two premature buy signals during 1931, at levels well above the market's mid-1932 low.
To statistically gauge the indicator's worth, taking both its successes and failures into account, I calculated the Coppock Guide back to 1896, when the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 8,677, -64.04, -0.73%) was created. Following every buy signal, I measured the market's return over various periods, and then compared those returns to what happened on average the rest of the time.
The results were not overwhelming. Over the three months following buy signals, for example, the Dow produced an average gain of 1.6%. That compares to an average gain of 1.5% the rest of the time -- hardly a big advantage for Coppock Guide buy signals.
Or consider longer time frames: Over the three years following buy signals from the indicator, the Dow produced an average gain of 22.5%, statistically indistinguishable from the average gain the rest of the time of 21.3%.
To be sure, after testing enough different time frames, I did find some that suggested that Coppock Guide buy signals had value. Unfortunately, there was little consistency to the results: What worked in the first half of the sample didn't necessarily work in the second half, for example.
The bottom line? Don't get seduced into believing that the Coppock Guide has some magical ability to identify new bull markets. Yes, a buy signal from the indicator would suggest that the market's trend has shifted. But, as history has amply illustrated, that trend could quickly reverse course.
Posted 03 June 2009 - 04:31 PM
BTW, I should add that my cycle work says more down at least into 2010 and the next 18 month low for the ultimate low (or at least not likely to be earlier than this). Guess that's not what the bulls want to hear. But that's what I have.
Question: What Does The Bullish Signal From The Coppock Guide Mean? Answer: Absolutely Nothing!
Monday, June 1, 2009
Question: What Does The Bullish Signal From The Coppock Guide Mean? Answer: Absolutely Nothing!
I 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
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 havenít 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.
Edited by SilentOne, 03 June 2009 - 04:38 PM.