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A few months ago I started to pay special attention to a remarkable but little followed technical indicator called the Coppock Curve or Guide. Peering ahead and assuming that the market would hold firm, I mentioned that by the end of May we would have a definitive buy signal. The market’s strength was impressive, as we all know and the signal did arrive for a new bull market.
Although of course, it remains to be proven beyond a shadow of a doubt that we have seen the low for this cycle, it looks to have been a valid signal. Returning to our hypothetical forward extrapolation of index levels, the Coppock Curve continues to act very bullish as it continues to rise out of the depths it had fallen to:
Source: InvesTech Research
If we assume that the S&P 500 index will close approximately where it is now by the end of August, then the Coppock Curve would continue to recover extremely fast, reaching -344. That is well above its February 2009 level and closing in on its January level.
That’s assuming that the market is unchanged until month’s end. But what if the market trips up from now until then?
In that scenario, the Coppock Curve still has a good chance of continuing to rise. In fact, the S&P 500 index would have to fall more than 200 points, below 780, for the Coppock Curve to stop climbing. That’s a hypothetical +20% decline.
And that is probably one of the positive consequences of this spring rally. Even if we were to give back 50% or even 65% of the advance, the market would still be able to carve out a higher low and a higher high - the very definition of an uptrend. Such a correction wouldn’t be surprising, especially when you consider the over confidence signaled by the various sentiment measures. But it would only wash out the weak hands and allow the market to continue higher.
While the track record of the Coppock Curve is impressive it is not perfect. If you squint hard enough, you’ll be able to make out the rare two times that its upturn did not mark a significant trend change.
But even so, since many are comparing this bear market to the one that came 80 years ago, it should be noted that the Coppock Guide was one of few technical indicators which allowed for the correct navigation of the bone crushing volatility of the 1929 bear market. During the aftermath there were several intense bear market rallies that fooled many. But they were all ignored by the Coppock Guide as it fell unrelentingly into the deepest level it has ever seen historically. Only in 1932 did it correctly give the all clear.
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