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Coppock Guide Signals The Start Of New Bull Market at Trader’s Narrative





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While we were in the thick of the 2008 bear market, I looked ahead and provided a road map for the conditions of a new bull market. Among them was the Coppock Guide.

At the beginning of the year I provided a hypothetical projection to demonstrate that the stock market would have to go on one hell of a bullish rampage to pull the Coppock Curve up from its death spiral. A few months later, a rally that almost no one foresaw took us 40% higher.

Then at the beginning of May, I reiterated that a Coppock buy signal would be arriving by the end of the month, as long as the market held it together and didn’t fall any further.

Well, we are finally here and the Coppock guide has provided a definitive signal by turning up - this is the buy signal that we had been anticipating:

Coppock Curve chart 1920 May 2009

I know, I know, it is impossible to see on the chart but believe me, it is there. To see a zoomed in view of the chart, check out the previous links. The S&P 500 Coppock Curve stopped going deeper into negative and actually increased from -417 at the end of April to -409 at the end of May 2009. All it would have taken was a one point increase but we got 8 points.

Now that we have a signal, what does it mean?

Well, obviously, it means we have the wind at our backs. The Coppock Guide has been a reliable indicator of the long term market trend. But, like everything else, it isn’t full proof - as you can see from the false signals. So with that in mind, here are three major observations:

First: The signal isn’t just for one index or market. We are seeing the Coppock Curves for many different markets around the world turn up at the same time. The Australian All Ordinaries, the Nikkei, the FTSE and all 3 major US market indexes: S&P 500, Dow Jones Industrial and the Nasdaq.

While most of the signals are occurring concurrently, some like the (Chinese) Shanghai market and the Nikkei gave signals last month. Check out all the major world markets to see how just how much confirmation we are getting from them.

Second: 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).

Of course, that doesn’t mean that from now on the market has only one direction - up! Based on the sentiment and technicals covered before (Wedge Formation), I think it is probable that we will head down, but won’t break the previous low. This will allow for the long term moving average to flatten out and begin to support, rather than hinder prices from going higher.

Third: Although the Coppock Curve has given its share of false signals, we haven’t seen any occur when the metric has curled up from such a deeply negative level. There are very few examples of this, so it is difficult to extrapolate a rule but so far, this has been the case.

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17 Responses to “Coppock Guide Signals The Start Of New Bull Market”  

  1. 1 Paul

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    Babak, not only S&P is way over 940, 3 more days like the last 3, it will be over 1,000. Happy days here, recession and bear over?

  2. 2 tradeking13

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    How valid is this signal today given that the economy is on government life support? Just askin’.

  3. 3 Babak

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    Paul, maybe, but recession and the market are two different animals. Take a look at the Anxious Index.

    tradeking, I’m wary but can’t help thinking that most everyone else is also. This has got to be the most hated rally I’ve ever seen (not that I’ve been around that much).

  4. 4 Paul

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    Babak, thanks for saying “most hated rally”. I was appalled by these big financial institutions in particular GS, controlling a very large disproportional share of principal trading volume (billions) as reported by Zero Hedge and relatively much smaller agency trades. Many gap ups at open and close like last Friday’s were so contrived and obvious. There seemed to be an invisible up hand for now at every critical support and resistance regardless of news, events, and so forth. If David Rosenberg is right, GS, and etc are setting all of us to suffer later. Remember these firms got us into trouble and were bailed out by AIG counter party TARP money (250 plus billions). It’s also ironic many treasury staff came from GS. What have these financial services firms produced?

  5. 5 Sam

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    Bloomberg has a piece on it

  6. 6 tradeking13

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    Babak, my point was how valid is this signal, or any other signal, when the government is propping up everything. The intervention in the markets/economy is unprecedented. How, then, can we look upon past signals in this indicator and compare to what is going on now? Until the government removes the training wheels and lets the economy ride on it’s own, I can’t take much comfort in indicators that worked in more “normal” times.

  7. 7 Timy

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    Well, when the Fed was propping up markets in 1987, 1989, 1997, 1998, 20003 by aggressively cutting rates with the US economy still in intensive care, no one in the market bothered to question whether one should be buying stocks and bonds. So Team Obama and Team Bernanke (actually it is still the same people from Team Greenspan and Team Banksters) figured they would be doing more of the same by propping up all asset classes, including stocks, mortgages, toxic wastes, etc etc. Why shouldn’t it work again? Why shouldn’t we be buying stocks? Everyone is complaining the government spent too much bailing out the bansksters, but the government is also giving taxpayers a chance to cash in, buy stocks, buy the banks, get rich, Babak is just one of many spreading the government’s gospel so taxpayers can get rich, until the next plunge of course. Just watch Goldman for the cue for the turn.

  8. 8 adhoc

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    So let me get this straight; this Coppock Curve gets lifted _after_ a 40% bounce?

    Another backward looking indicator. Useful.

  9. 9 chartistsarefinancialastrologers

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    Fool-proof, not ‘full proof’. The only thing fully proved here is the point made above; a lagging indicator which only starts flagging after a 40% bounce is useless.

  10. 10 Guru

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    Babak, thank you for bring the Coppock Curve to light. I started tracking and writing about it since I ran into it first in your December posting. I, too, have been anticipating this upturn of the indicator at the end of May all the way back to March 25. I wrote about yesterday in http://stockchartist.blogspot.com/

    Forget about those doubters. When used properly it can improve investment performance by helping time the market. During the past 18 months, the winners were not those who made the most money it was those who lost the least. The Coppock Curve, if you acted on it, could have saved you tons of money.

  11. 11 tradeking13

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    Timy, if all the Gov’t/Fed did was lower rates and enact a little bit of stimulus, then I would see your point, but they have gone way way way beyond that. The Gov’t is now a 60% shareholder in our country’s largest automaker. The Gov’t owns preferred stock in our major banks. When has this ever happened in history?

    We are in uncharted waters. A signal from an obscure indicator after a 40% low-volume rally hardly makes me want to buy stocks at these levels. Now, a 62% or 50% retracement from these levels? Well, that’s a different story.

  12. 12 blues

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    Coppock indicator don’t mean a co*k….

  13. 13 blues

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    America is going down, PERIOD! Simply look at government’s PONZI scheme… look at government crazy spending, look at Citizen’s crasy spending… I’m surprise we are not at 100 on SPX, are we better off right now then the 1980s? Do we have less DEBT then 1980s? Do our manufacture base better then 1980s? In fact scratch that, what manufacture base?!

  14. 14 EQ

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    Let’s do a little test. You go full in here and tell us how it works out.

    Or, we could look at another test. Show me how that doodad, remember the Coppock Curve is a very simple rate of change calculator, does in a comparable historical environment to today. ie, Show me how it performed on a go-forward basis with the Federal Reserve adding $12 trillion to the markets, the government adding $2 trillion in stimulus, quantitative easing, short term interest rates at zero, $60 trillion in debt, government debt to GDP equal to one, and a world economy that is imploding.

    Now, how does the Coppock Curve work in that environment on a go-forward basis? You should be ashamed of yourself. This post shows a complete naivety as to what the world is dealing with. You have to be smarter than the ridiculously stupid ROC indicator you propose tells us a new bull market has started.

    Sorry to rain on your blog, but when you put yourself out there as an expert for others to see, you should be able to defend your positions. So, defend away.

  15. 15 Sam

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    WTF? All Babak pointed out was an indicator turned up. He didn’t ask anyone to buy/sell anything based on this. What’s with all the hate?

    If anything, the fact that so much of retail is bearish/skeptical, means this rally still has legs.

  16. 16 tradeking13

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    If anything, the overuse of the term “green shoots” means they are just weeds.

  17. 17 Babak

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    Sam, I was thinking the same thing lol - as I said before this is the most hated rally.

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