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Coppock Guide About To Give Bullish Signal at Trader’s Narrative





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“I, for one, welcome our new bull market overlords.”

Is this just a really deceptive bear market rally or is it the real thing? While the debate still rages, the market keeps going and going and going… like the Duracell battery rabbit.

A reliable but somewhat esoteric long term indicator is ready to pronounce the birth of a brand new bull market. Just as long as the stock market can hang on to most of its gains by the month’s end.

If you’re not familiar with the Coppock Curve I introduced it last summer as one of the pre-requisite conditions for a new bull market. Click the previous link to learn more. The other conditions (recession, a 20%+ decline, easy monetary policy, etc.) have all been fulfilled. The stage is now set for the last piece of the puzzle.

In January I wrote a Coppock Guide forecast:

In that hypothetical scenario, the Coppock curve would turn up by the end of February 2009 by the minimum. And in March, it would turn up significantly.

I wasn’t trying to predict what the indicator would say and when so much as to show that we would need to see one hell of a rally for it to register a change of direction in the Coppock Curve. And did we ever! From the March bottom the S&P 500 rocketed up 36%. That not only surprised almost everyone, it was finally enough to force the Coppock Guide to curl up:

Coppock curve chart May 2009

S&P 500 Index
Probably the most important of all the indices, the Coppock Curve for the S&P 500 Index is about to give us a new signal to indicate a new bull market. But before it can do that, the S&P 500 will have to close at or above 874 at the end of the month. That is a fairly small buffer area of 3.35%. If it can manage that, then we’ll see something like the zoomed in chart shown above.

As the 2002 false signal shows, while this lagging indicator has a fantastic track record, it is far from perfect.

Of importance is not just that we are about to see a respite in the continuous drop in the Coppock Guide but that this upturn (when it comes) will be from an extremely deep level. As you can see from the chart, we haven’t been here for a long, long time. According to the Coppock Guide, a new bull will be proportional to the bear market that preceded it. So a recovery launched from such an extremely negative level means that the new bull market will be powerful and long lasting.

Nasdaq Composite
The Coppock Guide for the Nasdaq Composite already gave us a signal at the end of April 2009. But I hold it with suspicion since in the past the indicator has not been too trustworthy. For example, going back to the last time we transitioned from a bear market to a new bull market, the Nasdaq Coppock Guide was off by a lot. It first turned up in December 2001. But that was a false signal. Then there was another signal in August 2002 and December 2002. Both were again false.

Finally, it curled up yet again in late March 2003, just as the nascent bull market was sprouting its horns. So you can understand my reticence in rushing to accept the Coppock signals from the Nasdaq index. The good news is that because the Nasdaq Coppock Curve has already turned up, it needs to do much less to prove itself and confirm the signal. In fact, we could see the Nasdaq Composite fall 7.7% to 1587 by the end of the month and it would still be enough to keep the Coppock Guide headed upwards.

Dow Jones Industrial Average
The Dow Jones Industrial Coppock Curve is also ready to curl up after topping in October 2007. If it can manage to close at or above 8210 by the end of this month (about 2% from here) a valid signal would be given.

Caveats Galore
So while, “I, for one, welcome our new bull market overlords.” we’ll have to wait at least until the end of the month to get a definitive signal from this trusty indicator. And as a final caveat, while the Coppock Guide has an enviable track record, like anything else, it isn’t foolproof.

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12 Responses to “Coppock Guide About To Give Bullish Signal”  

  1. 1 blues

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    “I, for one, welcome our new bull market overlords.”

    There will be no new bull market for a long time! So keep on hoping! America, POS will fail! Too much DEBT still, no change, no pay down, so how’s new bull market going to work out? Maybe new bull market in East, but WEST is doooomed!

  2. 2 e

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    Amazing

  3. 3 Babak

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    blues, don’t shoot the messenger! I’m just telling you what the Coppock Guide says. Things may look bad but it is always darkest before the dawn. Or there is always a light at the end of the tunnel… and hopefully it isn’t a runaway freight train about to flatten us.

  4. 4 Dhath

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    Enjoying the site. Been an occasional visitor for 2-3 months now. Good insights, thanks.

    To blues and sinilar I leave you David Rosenberg’s point #4 from his parting list today…

    4) Fall in love with your partner, not your forecast.

    No one knows what will happen, but you will eliminate 50% of your potential wins if you take a hard stance before tomorrow unfolds.

  5. 5 blues

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    Babak, the DEBT freight train WILL FLATTEN US of A…

  6. 6 Babak

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    blues, you may be right. To play devil’s advocate, consider that inflation can flatten debt…

  7. 7 Lou

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    The amount of debt is not as important as debt to GDP ratio - in other words, how much ability do we have to pay ourselves out of whatever debt we are in?

    Japan’s dept-to-GDP ratio is 170%, Italy’s 103%, France 67%. The US is at around 80% right now in Q2-2009, although that number is rising. Not a great place to be, but keep in mind that the US was at 94% in 1950 and we not only survived, but prospered.

  8. 8 Senta

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    Equitorial Guniea has a debt to GDP ratio of 0.01. Must be a good place to invest.

  9. 9 Babak

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    Senta, that’s hilarious. Where did you find that stat?

  10. 10 Lou

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    Very well, Senta. To play devil’s advocate, Equatorial Guinea has considerable wealth due to abundant energy reserves. The small population relative to available wealth means this country could one day be an excellent buy were the political climate to change favorably, so you should keep an eye on it. Per capita income is $15k annually (3x that of South Africa, 50% above Brazil), while it has a per capita GDP of $30,000 (5x that of China, and in the same ballpark as the US).

    Unfortunately, almost all of this income is appropriated by the dictator/president, leaving the population in poverty. Mark Thatcher shared your aspirations - he allegedly financed a coup there, likely noting the same opportunities for growth in an emerging market that you do, Senta.

    While the above is tongue-in-cheek, you must recognize that investing in penny stocks requires a different outlook than buying Fortune50. Guinea is like a penny stock, or perhaps more like a slot machine.

  11. 11 Babak

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    Lou, EG doesn’t even have a stock market (yes, I checked lol)

  12. 12 Johan Lindén

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    Nice signal!

    I guess all the haters in the thread got burnt if they didn’t follow this signal.

    I just wonder what the signal says today?

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